Member Spotlight: Q&A with Mark Casale of Essent
USMI’s member spotlight series focuses on how the private mortgage insurance (MI) industry works to address several critical issues within the housing finance system, including expanding access to affordable mortgage credit for first-time and minority homebuyers, protecting taxpayers from mortgage credit risk, and recommendations on ways to reform and enhance the housing finance system to put it on a more sustainable path for the long-term.
This month we chat with Mark A. Casale, Chairman, President and CEO at Essent Guaranty, and Vice Chairman of USMI’s board. Essent, founded in 2008, offers private MI for single-family mortgage loans in the United States, providing private capital to mitigate mortgage credit risk for lenders and investors, allowing lenders to make additional mortgage financing available to prospective homeowners. To better execute Essent’s core purpose to ensure borrowers have access to sustainable mortgage credit, Essent remains focused on managing mortgage credit risk, enhancing the business model of the private MI industry, and strengthening private MIs as counterparties to the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, lenders, and other stakeholders.
Below, Casale discusses Essent’s views on the housing market as we come out of the COVID-19 pandemic, the continued evolution of the private MI industry and the role of innovation, and how this evolution will better serve borrowers and the housing finance system.
(1) Given the importance of low-down payment financing in the housing finance system and considering the competitive real estate market, what steps do you think the industry should take in the next year or two to better serve first-time buyers?
The 2021 housing environment has been strong as low interest rates continue to boost refinance and purchase market activity. However, a meaningful lack of housing supply has impacted affordability.
Millennials ―around 80 million strong― continue to contribute to the favorable demand dynamics. Driven by significant life events such as marriage and children, an increasing number of millennials are forming households, and continuing to provide strength to first-time homebuyer demand.
Millennials, and especially Hispanics, which represent 20 percent of this important segment of our population, are projected to be the dominant population and primary drivers of new homeownership for years to come; and we can already see the significant impact they are having on the real estate market and demand for housing.
Given this context, as more millennial homebuyers enter the market, it will be critical for the industry to improve consumer access to affordable credit, especially to first-time, younger and minority homebuyers, who may not have the resources or intergenerational wealth to afford the standard 20 percent down. Private MI companies are an important supporter of affordable, low down payment mortgages, helping more homebuyers get into homes and on a path to building the long-term wealth associated with homeownership.
(2) Private MI has provided credit risk protection to lenders and the GSEs for nearly 65 years, but our industry has also evolved to become stronger and more resilient. How does Essent describe its approach to risk management and credit risk transfer (CRT)?
Risk management has always been a key tenet for mortgage insurers because of the nature of our business of taking first loss credit risk on high loan to value loans. Post the Great Financial Crisis, risk management continues to evolve through new data sources, enhanced analytic tools and techniques, as well as the importance of quality control of the loan manufacturing process.
The ability to transfer credit risk to third parties in CRT transactions is an integral component of risk management for MI companies. The industry traditionally relied on reinsurance transactions and has completed over 30 transactions reducing loss exposure and making more capital available to support additional lending. Innovative leadership by the GSEs and the Federal Housing Finance Agency (FHFA) in the CRT market helped create a broader credit risk transfer market for mortgage insurers through the advent of Insurance Linked Notes (ILN). The MIs began utilizing ILN transactions beginning in 2015 and ILNs have since become a programmatic execution for MIs as a risk management hedging tool and a reliable source of capital. The industry has completed over 43 ILN transactions to date. The MI industry has transferred over $50 billion of risk in force via CRT.
CRT has transformed Essent and our industry from an old business model of “Buy and Hold” risk to a new business model of “Buy, Manage and Distribute” risk. We have approximately 85 percent of our $200+ billion insurance portfolio hedged via CRT as of 2021Q2. This model will make Essent, and our industry, more resilient during times of crisis, enhancing our ability to insure loans during all cycles while serving as strong counterparties to our customers and the GSEs.
(3) How will MI need to innovate and evolve as an industry in order to ensure future generations have access to affordable housing?
A competitive mortgage insurance industry backed by private capital serves the housing finance system very well. Today, over $1.3 trillion of mortgages are financed by loans with private MI. However, mortgage insurers have and will continue to evolve, particularly as technology enables key connection points with loan origination systems and our lenders. In the past 2 years, more refined risk assessment and pricing of risk has been an important evolution in the MI space. Currently, over 95 percent of lenders now get MI quotes from a proprietary risk-based pricing engine vs a legacy rate card. Essent expects more granular risk assessment and pricing to continue to improve by prudently leveraging machine learning and artificial intelligence with existing and new sources of data. We believe these approaches enable us to more accurately assess the risk of the loan and make more affordable credit available to borrowers that traditional approaches might have turned away. Fannie Mae recently announced a change to include rental payment history in Desktop Underwriter, a great demonstration of how incremental data can assist in improving the overall risk assessment of a transaction.
We strongly believe that the inclusion of more data to evaluate loans will be a differentiator that expands access to credit for qualified borrowers and delivers the best MI price available to prospective homeowners. These types of innovations align with FHFA’s stated goals of improving access and affordability as well as reducing racial inequality in homeownership. The MI industry will continue to be a valuable business partner to lenders and the GSEs in improving access and maintaining responsible lending standards so that our housing finance system provides sustainable homeownership.
Mark A. Casale’s Biography
Mark A. Casale is the founder, Chief Executive Officer and Chairman of the Board of Directors of Essent Group Ltd. (NYSE: ESNT). Mr. Casale has more than 25 years of financial services experience, which includes senior roles in mortgage banking, mortgage insurance, bond insurance and capital markets.
Founded in 2008 by Mr. Casale with $500 million of equity funding, Essent Group Ltd. has grown to a market capitalization of approximately $5 billion and manages more than $200 billion of insurance in force. Under Mr. Casale’s leadership, Essent has become a leading mortgage insurer and reinsurer serving as a trusted and strong counterparty to lenders and GSEs and has enabled over two million borrowers to become homeowners. Mr. Casale continues to evolve the franchise using risk-based pricing and AI-driven analytics to support his core mission of prudently growing shareholder value and promoting affordable and sustainable homeownership.
Mr. Casale also champions Essent’s philanthropic mission, supporting local and national organizations centered around children, housing, health, and education. He currently serves as a member of the Board of Trustees for St. Joseph’s University, La Salle College High School, and the Academy of Notre Dame de Namur.
A native of the Philadelphia region, Mr. Casale holds a BS in accounting from St. Joseph’s University and an MBA in finance from New York University.