Financial Crisis Increases Demand For Mortgage Insurance
Mortgage insurers haven’t been immune to losses stemming from the subprime collapse, far from it in fact. They, like their counterparts in the bond insurance industry are also facing another round of credit downgrades, overall it has been a pretty rough year.
However, unlike bond insurers, they can look forward to an increase in demand for their services. With lending institutions tight with credit these days, potential home buyers are finding it difficult to procure “piggy back” mortgages.
A typical mortgage requires a 20% down payment but when a buyer falls short of that mark the standard practice over the past few years has been for the buyer to seek out a smaller second mortgage at a higher interest rate to make up the difference. With it becoming much harder to find a “piggy back” mortgage, potential buyers are increasingly turning to Private Mortgage Insurance(PMI) as an alternative.
For many years PMI was at a disadvantage until Congress added a provision to the IRS tax laws to make PMI interest payments tax deductible as was the case with mortgage interest payments.
It may take awhile for the industry to become profitable again as they will be susceptible to losses from bad mortgages that were given out in the past few years. The higher demand though gives them the luxury of being able to tighten their standards considerably without an appreciable loss of business.
