Fiscal cliff deal gives mortgage insurers confidence

Author(s):

Kerri Ann Panchuk [1]

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A tax deduction for homeowners with private mortgage insurance is more than a boon for borrowers. It also suggests Congress sees a benefit in leaning on MI providers—a philosophy that could shape the future private-label mortgage market.

The fiscal cliff deal preserved a tax deduction for the premium cost of mortgage insurance on homeowners with an adjusted-gross income of under $100,000.

While this tax break helps homeowners, it also gives private mortgage insurers a dose of confidence as they continue to position MI firms for a future in the mortgage financing space.

Teresa Bryce Bazemore, the president of the Mortgage Insurance Companies of America, said in a statement, the "recognition of the value of private mortgage insurance to borrowers and to the housing market helps assure that the industry has and will continue to play a key role in a revitalized housing market as first time and low- to moderate-income families increasingly rely on private sector capital to access residential mortgage loans."

The fate of MI is somewhat uncertain with the industry still waiting to see the definition of a qualified mortgage and the parameters of the qualified residential mortgage (risk-retention rule) for the secondary mortgage market.

Still, private MI insurers have contended all along that shifting from agency-control of the housing finance system to a more private-label supported market would require the presence of mortgage insurers to absorb the risk from federal housing agencies.

Steve Horne, CEO of Wingspan Portfolio Advisors, noted after the fiscal cliff plan that the mortgage financing system is generally "going through incremental changes" and the deduction for mortgage insurance is likely to be a positive for MI companies that are positioning themselves to come back with the private-label market.

David Stevens, CEO of the Mortgage Bankers Association, noted in the current market, "most low downpayment financing is going towards the FHA." He believes another pricing disadvantage for private mortgage insurance transactions that occur outside the FHA could impair the market further.

"The goal is move mortgage financing away from government agencies," said Stevens.

kpanchuk@housingwire.com [3]