Publication DateSeptember 2014
Author(s)Janneke Ratcliffe, Kevin A. Park
The modern private mortgage insurance industry has been around since 1957 and is built into the American housing finance system by the requirement for credit enhancement on high-loan-to-value mortgages in the charters of the government-sponsored enterprises.
Through ups and downs in the housing market, mortgage insurance has ensured (and insured) the continuing availability of low downpayment conventional
mortgages vital for first-time homebuyers and many underserved borrowers.
Similar to many participants in the mortgage market, private mortgage insurers have suffered large losses in the most recent downturn, the worst since the Great Depression. Still, insurers have reimbursed the government-sponsored enterprises approximately $42 billion since they entered conservatorship.
Reforms to the private mortgage insurer eligibility requirements used by the Enterprises are important to ensure the financial claims-paying ability of insurers in times of stress, but should also consider the effect on profitable low down payment mortgage lending and sustainable homeownership among wealth-constrained Americans. Moreover, the eligibility requirements for private mortgage insurers should go beyond basic questions of capital adequacy to implement a more holistic arrangement with the Enterprises.