Insurance Quotes & Advice

Mortgage insurers have struggled mightily since the housing market collapsed.  Hit by record foreclosure rates across the nation, they have taken considerable losses, while at the same time, new business is being hurt by the credit crunch which has put a crimp in housing demand.

However with so much of the economy struggling they are clearly in the back of the line waiting for any type of government bailout.  That being said, they will need to play a large role if there is to be any chance of a housing recovery.

Lockhart, who spoke to reporters after addressing a conference of the Association of Government Accountants, said he would like to see mortgage insurance companies receive a capital injection under Washington’s financial market rescue plan. His voice, however, is just one among policy-makers debating how to stabilize financial markets without burdening taxpayers with more costly bailouts.

“The right step is to get them some more capital so they can get back in the game,” Lockhart said.

Whether they get that infusion of capital remains to be seen but they services will be in high demand if and when the housing market starts to pick back up.  With banks having much tighter lending standards these days, they are not likely to favor giving out “piggy back” mortgages like crazy like they used to do.

That leaves prospective home buyers who are short of the standard 20% down payment with the option of getting mortgage insurance.  Unfortunately mortgage insurers have also tightened their standards, due to the above mentioned, record foreclosures.

A lot of things need to fall in place for the housing market to recover and mortgage insurance is one of those pieces.  How long it will take the government to recognize that fact and how much it will cost, remains to be seen.

Unfortunately with no one willing to take risks anymore, it’s the government which has had to step in and spend a lot of money to try to get the wheels turning again.

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.

Mortgage insurers have been reeling from the record number of claims due to the rising foreclosure rates in the wake of the subprime collapse.  Unfortunately for them, the worst is yet to come claim’s Fitch Ratings.

“The mortgage insurance industry’s troubles are not over and may, in fact, get worse,” Fitch said in a report today. The industry “underestimated both the scope and severity of the decline in residential mortgage markets that became increasingly acute in 2007.”

About a third of the industry’s total coverage outstanding is for 2007 mortgages, and homebuyers borrowed at least 95 percent of the property’s value on most of those loans, according to Fitch. Borrowers with prime credit scores became delinquent in their first year on 2007 loans at more than twice the rate of their peers who took out mortgages in 2006.

Like the banks that offered the loans, the insurers also had lax standards as business exploded in growth when private mortgage insurance became more competitive with tax law changes.  Now the insurers are paying the price because unlike banks they couldn’t spread their risk around in a secondary markets as with mortgage securitization.

Now we are seeing the flip side, much tighter underwriting standards.  Many of the homebuyers who qualified for insurance in the previous two years would be unable to purchase polices under current conditions.

With banks also tightening their lending standards, you won’t see as many so called “piggy back” loans where buyers don’t have the standard 20% down payment.  So, that means banks will then require more prospective borrowers to purchase Private mortgage insurance or PMI as it is better known as.

While the tighter underwriting standards are obviously a smart move on insurers’ part, it’s also another reason why a quick turnaround in the housing market is becoming less and less likely.