MGIC to Lower Mortgage Insurance Rates for Good Credit Borrowers
Citing a need to stay competitive with Federal Housing Administration (FHA) mortgage insurance rates and, to a lesser degree, the Veterans Administration (VA), the nation's largest private mortgage insurer, MGIC(MGIC), plans to readjust its rates as of May 1, 2010. The new rates will be lower for borrowers with a credit score of 720 or greater and higher for borrowers with credit scores between 620 and 679. No change is expected for those with a score between 680 and 719, according to a form 8-K filed today with the Securities Exchange Commission. Both the FHA and VA sponsor government-backed mortgage insurance programs. And during 2008 and 2009 the combined administrations increased business and accounted for approximately 60.4% and 84.6% of the total low down payment residential mortgages subject to governmental or private mortgage insurance, the filing states. "This increase in market share includes loans that are eligible for insurance under our current underwriting guidelines," the statement reads. "We believe the FHA, which until 2008 was not viewed by us as a significant competitor, accounted for the overwhelming majority of this increase in both 2008 and 2009." The huge increase of FHA market share is shocking the market in several ways. Some critics worry about the the lack of a third-party based mortgage finance funding vehicle as the FHA replaces private-label securitization, they argue. More immediately, defaults are rising for the FHA, recently inching past 9%. However, after taking into account the growth of FHA, with a portfolio now worth $750m, the proportional risks are not an indication of the overall health of the business. "Given the premium rate increases previously announced by the FHA, which will be effective in the near future, MGIC intends that these price changes will position it to be price competitive with the FHA for loans to borrowers with credit scores of 720 and greater," MGIC said. "However, there may be advantages to lenders to insure loans through the FHA, including higher servicing fees than on conventional loans." Write to Jacob Gaffney.