The mortgage insurance industry shielded government-sponsored enterprises and financial firms from billions of dollars in additional liabilities during the housing crisis, Teresa Bryce Bazemore, president of Mortgage Insurance Companies of America, said Tuesday in an interview with HousingWire.
She said the group’s member insurers, which guarantee home loan products for financial firms and investors, paid more than $28 billion in mortgage insurance claims over the past few years.
In some cases, mortgage insurers shielded taxpayers from deeper losses on troubled Fannie Mae and Freddie Mac loans, according to Bryce Bazemore, also the president of mortgage insurer Radian Guaranty Inc., part of Radian Group Inc. (RDN). They did this by tapping into existing mortgage insurance contracts that guaranteed some of those distressed assets.
Without mortgage insurance, the taxpayers may have been on the hook for an additional $7 billion in loan guarantees, she said. Instead, now struggling private insurers picked up the bill.
Bryce Bazemore said the reason is simple: When Fannie and Freddie originally signed their charters, it was stipulated that the companies had to obtain credit enhancement on any loan with less than a 20% down payment. The GSEs generally got that enhancement through private mortgage insurance.
“The exception to that (rule) was the 2003 to 2007 window,” she explained. During that period, borrowers slipped into the federally insured GSE loan pool with 80% loan-to-value ratios prior to the housing meltdown because some buyers were covering the remaining 20% with a second mortgage.
“In that case, the GSEs (and the taxpayers) took a hit on those loans, but there was no insurance to help them. However, on loans where there was insurance, we have paid a significant amount,” Bryce Bazemore said.
2012 Legislative Agenda
MICA is revving up to advocate for its 2012 agenda. The trade group is devoted to obtaining a more permanent extension of the mortgage insurance tax deduction and plans to push for a qualified residential mortgage rule that doesn’t include a 20% down payment.
“We believe it’s appropriate to have loans with a 5% down payment and private mortgage insurance for the investor’s protection,” said Bryce Bazemore.
Bazemore said MICA’s main goal in 2012 is to encourage a shift away from a federally supported housing market.
“We are focusing on making sure that the federal government’s role in housing starts to diminish,” she said. “We are focused specifically on what can be done to move volume to the private sector, so there is more of a balance in the marketplace.”
A Still Struggling Sector
MGIC Investment Corp. (MTG) narrowed its fourth-quarter loss by 37% from last year, but the firm’s bottom line is still suffering from mortgage defaults that occurred in more recent periods.
The mortgage insurer said it successfully secured a deal with Fannie Mae, Freddie Mac and the officer of the commissioner of insurance for the state of Wisconsin to continue writing new business outside the capital guidelines currently required in the state and by the GSEs. The Milwaukee-based company posted a loss of $135.3 million, or 67 cents a share, for the three months ended Dec. 31. That compares to a loss of $186.7 million, or 93 cents a share, a year earlier.
An ongoing challenge for mortgage insurers is raising capital, especially after the turmoil at The PMI Group last year. PMI filed for Chapter 11 bankruptcy reorganization after it was taken over by its main regulator.
Bryce Bazemore said a shift away from a federally focused housing market will benefit mortgage insurers.
“It’s really about the opportunity to write more insurance,” Bryce Bazemore said. “It has increased slowly over the last couple of years, and the low point was the end of 2009 when only 3% of the market was going toward private mortgage insurance. Now that number is closer to 6%, but that is significantly lower than it historically has been.”
Write to Kerri Panchuk.
