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PMI firms make a comeback

By Judy Martel ·
Tuesday, August 13, 2013
Posted: 4 pm ET

Fewer mortgage delinquencies and a pullback by the Federal Housing Administration are fueling a comeback among private mortgage insurance firms, according to a report by Inside Mortgage Finance.

Borrowers who make a down payment of less than 20 percent of a home's sale price are required by the lender to obtain mortgage insurance. The policy protects the lender in the event a borrower defaults on the loan.

During the housing market collapse, the FHA backed 80 percent of home mortgages with mortgage insurance, according to the report, which drove a lot of the private insurers out of the business. Since then, the FHA has raised its premiums in an effort to bring back private insurers, a tactic that seems to be working.

Lower mortgage delinquencies are also enticing private insurers to return to the business. According to Inside Mortgage Finance, there are currently six private insurers. Combined, they wrote close to $49 billion in new business in the second quarter of this year -- 27 percent more than in the first quarter.

Earlier this month, President Barack Obama put forth a housing plan that includes winding down the government-controlled mortgage finance companies Fannie Mae and Freddie Mac. The effort to move the mortgage business from the government to private investors will likely be beneficial to private mortgage insurers.

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August 14, 2013 at 7:40 pm

"Since then, the FHA has raised its premiums in an effort to bring back private insurers, a tactic that seems to be working."

Not true. FHA is required by congress to maintain a certain reserve in their mortgage insurance fund. FHA has squandered the Mortgage Insurance Premiums it collected by "spreading it around" to other FHA operations that have nothing to do with insuring the viability of FHA mortgages.

Since congress requires FHA to maintain those reserve funds, they have no choice but to increase the Mortgage Insurance Premiums. This has made FHA mortgages more expensive than conventional loan with Private Mortgage Insurance.

Furthermore, to make matters worse, FHA's Mortgage Insurance Premiums are for the life of the loan in most cases. In the past, FHA MIP would drop off once you have paid the loan balance down to 78%.

To think that FHA intentionally increased its premiums to bring back private mortgage insurance is to give them too much credit. They simply can't manage their own finances well.

August 13, 2013 at 5:34 pm

The banks would b closed down if all our crooked bankers went to jail.Hey ,not a BAD idea.
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