Mortgage Insurance Credit Risk Transfer (MI-CRT) has been used by the MI industry for a number of years. Increased use of CRT by private mortgage insurers to capital markets and reinsurers has significantly reduced industry exposure to mortgage credit “tail risk.” The increased use of CRT since 2015, combined with enhanced Private Mortgage Insurer Eligibility Requirements (PMIERS), has transformed the MI business from a cyclical business to a more stable, long-term, manager of mortgage credit risk.
MI-CRT enables private MIs to reduce volatility in the business and bring more sources of private capital to the housing market, without diluting the important role that private mortgage insurers play as a second set of eyes that actively manage and hold capital against mortgage credit risk. This allows the private MI industry to serve as a strong and stable counterparty to the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and therefore taxpayers. It also brings tremendous value to other institutions where private MI assumes the first loss—while also facilitating access to mortgage finance credit for millions of people who do not have significant down payments.
As of October 2020, Private MI companies have transferred nearly $41.4 billion in risk on over $1.8 trillion of insurance- in-force (IIF) since 2015—through both reinsurance transactions and insurance-linked notes (ILNs).