Outlook Improves for Mortgage Insurers

Back in the period from 2008 through 2012, mortgage insurers incurred costs of around $2 for each dollar they earned in premiums.

Those operating metrics wound up driving three of the
original eight mortgage insurance companies to stop writing new business.

That is according to the report
U.S. Mortgage Insurance: A Market in Recovery from Fitch Ratings.

Among the mortgage insurance casualties tracked by Mortgage Daily were Triad Guaranty Insurance Corp., which stopped issuing commitments in 2008; PMI Mortgage Insurance Co., which ceased issuing new policies in 2011; and Republic Mortgage Insurance Co., which stopped writing new business in 2011.

But times have changed for the sector, which is returning to profitability, according to Fitch.

The ratings agency said increased market stability, Fannie Mae’s and Freddie Mac’s continued presence and enhanced regulator standards
have helped to provide clarity around the long-term demand for mortgage insurance products.

“While the long-term viability of U.S. mortgage insurance doesn’t appear to be in jeopardy anymore, the industry has evolved since the recession,” Don Thorpe, Fitch’s senior director for insurance, said in a written statement. “Improvements in mortgage underwriting have attracted new participants and pushed the industry back to profitability.”

The New York-based firm predicts a decline in rescission volume thanks to better underwriting.

Also helping industry profits
are the elimination of premiums paid to captive insurers.

But Fitch warned that continued regulatory scrutiny, upcoming recommendations from the National Association of Insurance Commissioners that are still not known, and which states will adopt risk-based capital standards remain a potential liability for the sector.

In addition, the industry is still
vulnerable to downturns in home prices, employment, personal income levels and interest rates.