NMI Holdings Inc. successfully raised $550 million in private capital to launch a new private mortgage insurance company.
Bradley Shuster, chairman, president and CEO of NMI Holdings, raised the capital to launch National Mortgage Insurance Corp. — a company he believes will find its place by insuring some of the risk from Fannie and Freddie loans while also guaranteeing payments on mortgages made by private firms.
Shuster's optimism is palpable at a time when other private mortgage insurers are in run-off mode.
The past few years have been rough on mortgage insurers. The PMI Group (PMI) in 2011 was pulled under its primary regulator's umbrella and forced to stop writing new business. MGIC spent the past year wrangling with state regulators and the GSEs to maintain its right to issue new business in U.S. states. Shuster, himself, spent a large part of his career at a legacy mortgage insurance firm, serving PMI Group as president of international and strategic investments.
But, ever since the Federal Housing Finance Agency put out a report in 2011 suggesting a transition to a mortgage market driven by private capital, Shuster has anticipated a place for MI. And he, as well as NMI's investors, are putting money and effort behind the business model.
"I think there is a need for mortgage insurance as it historically functions in providing down payments for people who put less than 20% down," Shuster told HousingWire. "I think that demographic is going to see strong growth in the coming years."
Shuster believes the echo-boomers, or children of the baby-boomers, are about to reach the critical first-time home buyer age of 34. But, if you look at the average savings rate for this group and the average price of a home, it's unlikely the traditional 20% () financing model will be sufficient to help this group achieve homeownership, he suggests.
"It would take that first-time home buyer 15 years to make a traditional ()," said Shuster. "Demand could be very strong for our type of product."
This is where he believes National Mortgage Insurance Corp. and other insurers will find their next generation of business.
And while the future of the housing finance system looks uncertain, Shuster believes MI has a place at the table on the GSE and private-label side.
"I still think the government is going to play a major role in the housing finance market," he said. And it's already known that private insurers took some of the first losses on guaranteed GSE loans.
But even if the mortgage finance system is eventually supported by more private capital, Shuster expects insurers will be asked to guarantee some of that risk as well.
The company is already working with Fannie Mae, Freddie Mac and the FHFA to obtain regulatory approvals to write new mortgage insurance. The company also qualified for an accelerated licensing process that gives insurers the opportunity to gain licensing in multiple states at once.
If approvals are granted, the firm expects to write its first insurance policy in early 2013.