National Mortgage Insurance Corporation (National MI) President and CEO Bradley Shuster delivered a presentation to investors on the outlook for private mortgage insurers at Sanford C. Bernstein Co.’s Inaugural Thematic Financials Conference in New York today. Favorable demographics, an increase in purchase mortgage originations, and a market shift away from FHA all signal potential growth opportunities for private mortgage insurers (MIs), Shuster said.
First-time homebuyers represent a critical segment of the home purchase market, and a considerable opportunity for private MIs, Shuster noted. “Approximately 33% of all GSE-securitized purchase mortgages in the first half of 2013 were first-time homebuyers,” he said. Statistics show that the average age of a first-time homebuyer is 34 years old, Shuster said, and an increasing number of Americans will turn 34 nearly every year over the next decade. In fact, over 40 million Americans will reach that age in the next 10 years. Based on median home prices across the country, research shows that it takes the average first-time homebuyer 14 years to save a 20 percent down payment for a home. By providing the credit enhancement needed for lower down payment mortgages, private MI can reduce the time it takes a borrower to save a down payment to under six years, Shuster said.
While overall originations have decreased recently, the percentage of purchase mortgage volume relative to refinance volume is increasing, which Shuster believes bodes well for private mortgage insurers. “MI penetration is traditionally four times higher in purchase mortgages than in refinances. We expect that the recovery in the housing market and the resulting increase in purchase originations mean that private MIs should see a boost in business,” Shuster said. Total originations are projected to be between $1.1 trillion and $1.3 trillion in 2014.
In addition, the shift towards private MI is expected to continue as the FHA pulls back to historic levels following several price increases, he said.
However, Shuster believes the industry requires additional private capital to meet the growing demand for private mortgage insurance. National MI estimates that the industry requires between $1.5 billion to $2.1 billion of additional capital each year.
The company raised approximately $510 million in private capital in 2012 to launch National MI, which issued its first mortgage insurance commitments just over a year ago. Since that time, the company has consistently gained business, and at the end of April 2014, had signed with nearly 500 lenders.
While the opportunities for private MIs as a whole are positive, Shuster believes that National MI is especially well positioned to grow in the coming years. He cites the following factors:
>> Industry leading underwriting protection and coverage terms
>> National MI is the first mortgage insurer to offer 12-month rescission relief, and is currently the only insurer to grant 12 month rescission relief on all loans. The historical industry standard is 36 months
>> A differentiated business model that enables National MI to be the first and currently the only mortgage insurer to underwrite every policy
>> A clean balance sheet with no legacy liabilities or rescission history
>> A highly favorable underwriting and credit quality environment
>> A simple organizational structure
>> A fully staffed sales force located in key regional territories throughout the country
“We believe National MI’s approach represents a distinct and better way to insure mortgages. We offer a strong capital base, counterparty strength, a differentiated product, and we provide superior ease of use,” Shuster said at the conference.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at email@example.com.