Mortgage Insurance is Reliable
Mortgage Insurers are Strong Counterparties, New Capital Standards Further Enhance Reliability
Much progress has been made, but more can be done to ensure the housing finance system is on a more sustainable footing. A key priority must be to position the private sector – not taxpayers – to bear more of the risks of another housing downturn. Policymakers are now considering proposals to de-risk the Government Sponsored Enterprises (GSEs) through greater reliance on private capital, such as expanded front-end risk sharing using private mortgage insurance (MI).
Borrowers who are not able to make a substantial down payment – typically 20 percent of the home value – are viewed as a higher credit risk. In order to reduce that risk, Congress required the GSEs to obtain credit enhancement on low down payment loans – most often in the form of MI – so that private capital, and not taxpayers, is first in line to pay when there is a default-related loss.
MI Reliably Transfers Credit Risk
MI is a first layer of protection against mortgage credit losses and a time-tested method of risk sharing that has been used by the GSEs and others on low down payment loans for more than 50 years.
Mortgage insurers covered more than $50 billion in claims since the GSEs entered conservatorship, resulting in substantial savings to taxpayers. Throughout the financial crisis, USMI member companies never stopped paying claims, never received any bailout money from the Federal government, and continued to write new insurance. In fact, since the crisis, mortgage insurers have paid 100 percent of valid claims, with 97 percent paid in cash and the remainder schedule to be paid over time.
Snapshot of Originations from 2000-2016 Shows MI Consistently in the Market
Percentage of Total Originations; Source: Inside Mortgage Finance
Mortgage insurers have a long history of consistently offering mortgage insurance even during significant market downturns. This makes MI very different from capital markets structures, which disappeared during the crisis and have not returned in any meaningful volume since. Going forward, mortgage insurers are even more reliable thanks to new master policies that provide enhanced contractual certainty on how and when mortgage insurers pay claims.