Executive Conversations is a HousingWire web series that profiles powerful people in the financial industry, highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with Sal Miosi, senior vice president of business strategy and operations for MGIC, to discuss MGIC’s sharpened focus on innovation and meeting lenders’ needs.
Q: What is MGIC doing differently to meet the ever-changing needs of mortgage lenders?
A. We formed a Customer Solutions Team. This team is a high-level and cross-functional group dedicated to engaging lenders, understanding the cyclical and structural forces that shape our business, and leading a creative solution-seeking process to help capitalize on the unique position we enjoy in the market as we serve the needs of our customers.
The team is led and supported by our newly formed Product Development Group, featuring two individuals with recent mortgage banking executive management experience. Bryan Specht joined the team earlier this year after most recently serving as chief operating officer at Stonegate Mortgage, one of the nation’s largest mortgage lenders. Geoffrey Cooper rejoined MGIC last year after six years leading the single-family housing division at the Wisconsin Housing and Economic Development Authority (WHEDA), the state’s housing finance agency and a GSE seller/servicer. Together, Bryan and Geoff have more than 45 years of experience in the mortgage finance industry.
Q. Tell us about the unique market position on which MGIC hopes to capitalize.
A. Significant changes within the last year that have impacted the private mortgage insurance industry include finalization of the Private Mortgage Insurer Eligibility Requirements (PMIERs); implementation of an industry-wide standard master policy designed to promote certainty of coverage through relief from potential rescission and denial; and the forthcoming finalization of the state Insurance Commissioners’ Model Act, which establishes operating and capitalization requirements for all monoline private mortgage insurers. These changes represent the culmination of efforts to modernize the MI industry with the goal of improving its ability to withstand another housing crisis like the one we just endured. The changes also lay the foundation for us to play a broader role in housing finance.
Today when we engage lenders, we talk about their opportunities and challenges. We can develop strategies to help them tap new markets, meet their training and staff development needs, think creatively about credit enhancement solutions, and explore the development of new loan products. We actively seek out ways we can help our customers grow and thrive as a business partner with the proven ability to serve their needs in both good and bad times.
Q. What are some of the challenges and opportunities that you are hearing from your customers?
A. Regulatory compliance challenges and TRID continue to be top-of-mind for lenders. We’ve also seen a growing interest in developing new products – specifically products aimed at helping young renters buy homes. We’re often asked about product development opportunities for Millennials – products designed to overcome the cash-to-close barrier to homeownership while maintaining purchasing power – and we’ve been very tuned-in to that segment. Sometimes it’s simply a matter of re-educating lenders that MI can facilitate lending to borrowers who have as little as 3% to put down, and encouraging lenders to more broadly market that fact to consumers. Lenders are often surprised that our guidelines include certain flexibilities, such as gift funds and the ability to use student debt payments based on income-based repayment (IBR) plans, which are features that should really help them tap the Millennial market.
Most recently, our new product development efforts have focused on the portfolio lending space where banks and credit unions can be creative in addressing the financing needs of their customers. Doctors’ loan programs, jumbo loan offerings, programs designed to help young renters buy homes, and programs designed to help banks perform better under the Community Reinvestment Act (CRA) are common themes. But not every lender has the ability and/or desire to keep their product, so we’re often asked to identify take-outs for products that the agencies won’t buy. This provides us the opportunity to match sellers with buyers.
Q. What about product development with the Government-Sponsored Entities (GSEs)?
A. In the agency arena, our main focus is exploring ways in which we can work in partnership with the GSEs to achieve a best execution for our mutual customers. Hopefully, that translates to lower costs for consumers. For example, there has been a lot of talk about front-end risk sharing so that deeper-coverage MI can be used to enhance a lender’s execution when delivering loans to the GSEs — while also making taxpayers’ exposure to credit default losses remote. As you know, the GSEs remain in conservatorship with no capitalization plan or other alternative end game in sight. Yet, encouraging private-sector capital to play a bigger role in the mortgage finance industry remains an objective of policymakers. Given PMIERs and the operational and capital requirements to which we must adhere, MI is a logical pivot point for meeting that public policy objective. This could reduce fees the GSEs are charging that are passed on to borrowers, and might result in an overall lower-cost loan for many GSE borrowers.
In addition to Fannie Mae and Freddie Mac, we also have a strong focus on strategic partners such as the Federal Home Loan Banks and Housing Finance Agencies. These mission-focused partners offer programs that are critical to many of our customers, so we work closely with them to stay ahead of the innovation curve.
As a team, we focus on providing credit enhancement solutions that either help lenders accomplish a better execution on their own balance sheet, or make loans more marketable to buyers. We provide a cycle-tested credit enhancement built to protect lenders and investors from credit losses in good times and bad, all while making homeownership not only more affordable, but also sustainable.
Q. Tell me more about how MI is built to withstand real estate cycles which we’ve learned can produce system-wide catastrophic losses?
A. Earlier I mentioned PMIERs and the financial requirements of the proposed Model Act, which we expect will soon be adopted by the National Association of Insurance Commissioners (NAIC). PMIERs and NAIC impose distinctly different capital regimes in that PMIERs tends to be pro-cyclical, whereas the Model Act is designed to be counter-cyclical. PMIERs requires capital be established up front based upon tables produced bi-annually by the GSEs and FHFA. Under PMIERs, required capital is assessed at the time of origination, and this required amount increases as loans go delinquent. In other words, capital requirements dictated by PMIERs will increase in bad times, while the proposed Model Act prescribes capital requirements that increase at the earliest signs of potential over-valuation in the housing market based upon specific market indicators, which should be well before a housing crisis hits.
No other mortgage credit enhancement provider is subject to such discreet risk-based capital standards, so this should give lenders and investors greater comfort and confidence in the loss-coverage ability of MI versus alternatives, such as self-insurance and debt structures. MI is built to withstand economic cycles, whereas alternatives to MI tend to be more opportunistic and may not be accessible across all economic cycles.
Q. Tell us more about the Customer Solutions Team and the product development process?
A. The benefit of having a high-level, cross-functional team lead our innovation efforts is that it shortens cycle times. We can move from idea to launch with speed because key parties are engaged at all points in the product design and implementation process simultaneously as opposed to serially. The other key is customer engagement, early and often. We receive lender input into concepts very early – in the R&D phase – and we continue to engage the lender as a concept advances through prototyping and into the pilot phase. The Product Development Group connects our operational units with the goals and objectives of our customers so that we are able to rally our resources and expertise and provide solutions that work for lenders.
We’ve talked mostly about MI and credit enhancement, but we’re also exploring other opportunities that would leverage our core competencies and potentially broaden our alignment with customers. It’s really very simple. If we help our customers become more successful, especially in the low-down-payment market, then in turn we believe we will be successful and we’ll have achieved our objective. For us, it starts and ends with the customer. Providing customers’ solutions is the key to our own long-term sustainable success.