Private mortgage insurance helped over 2 million low downpayment borrowers secure mortgage financing in 2020, a 53% increase from 2019, according to data from the government sponsored entities. The private mortgage insurance industry also supported $600 billion in mortgage originations.
The result was approximately $1.3 trillion in outstanding mortgages with active private mortgage insurance coverage by year’s end.
Members of the mortgage insurance industry worked closely with federal policymakers, industry groups, and consumer organizations to support homeowners experiencing financial hardship due to the COVID-19 pandemic, according to Lindsey Johnson, the president of industry trade group U.S. Mortgage Insurers. The mortgage insurance industry also updated its guides and processes to align with the Federal Housing Finance Agency (FHFA) and the GSEs’ policies to implement nationwide forbearance programs.
“The record-high volume in 2020 means that more families were able to become homeowners and existing homeowners were able to reduce their monthly mortgage payments by taking advantage of historically low refinance rates,” Johnson said.
In 2020, nearly 60% of purchase loans backed by mortgage insurers went to first-time homebuyers, more than 40% went to borrowers with incomes below $75,000, and the average loan amount with MI was approximately $290,000.
Among the unknowns servicers face in 2021 are changes that could affect lender-placed insurance (LPI). Servicers must have the flexibilities in place to keep up with the latest changes to remain compliant and efficient while still providing an optimal borrower experience.
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Approximately 65% of the new volume was for new purchases, while 35% was for refinance loans. By 2020’s end, USMI members held more than $6.3 billion in excess of capital requirements set by the GSEs, allowing the industry to support lenders and borrowers over the past year, Johnson said.
“The private MI industry was able to serve as a source of strength through the COVID-19 pandemic and support a record number of borrowers because of the enhancements made by the industry – including increased capital and operational requirements,” Johnson said. “The COVID-19 pandemic has further highlighted the significant racial and economic disparities in the U.S. housing market, as well as the need to increase access to affordable mortgage options.”
In a recent interview, Johnson and Claudia Merkle, CEO of USMI member National MI, discussed the record volume in the private MI market while noting two key factors to success: a plethora of first-time homebuyers coming into the market, and low interest rates, which helped fuel the strong mortgage market momentum in 2020.
“[The first time homebuyers] have good credit but struggle to put 20% down on their first house,” Merkle said. “Private MI is a great fit for them.”
Mortgage insurance is required on all FHA loans, but the cost varies. Private mortgage insurance is only required if a buyer makes a down payment under 20%, but even then, not always. If a lender does require PMI, buyers can cancel the policy once there’s 20% equity in your home. Freddie Mac estimates that PMI costs around $30 to $70 per month on conventional mortgages.
With FHA loans, the premium depends on the loan balance and down payment size. In some cases, home owners can cancel an FHA mortgage insurance after 11 years.