September 28, 2021

MP Now News

Mortgage News

Private mortgage insurance took even more business from FHA in 2Q

The growth gap between private mortgage insurance and Federal Housing Administration loans continued to widen in the second quarter due to the government agency’s stricter underwriting standards due to the pandemic.

However, the pace at which the PMIs are increasing their insurance portfolio should slow down over the next two years, but that should still exceed the expected percentage increase in outstanding mortgage debt, a report from Keefe, Bruyette & Woods said.

Existing insurance for the PMIs from June 30th compared to the first quarter by 2.7% and compared to the previous year by 9%. This compares to IIF declines at the FHA of 0.9% and 3.2%, respectively.

“While we believe there has been great demand from first-time home buyers, this cohort has struggled in the competitive housing market,” KBW analyst Bose George said in a report. “We believe that the lower credit quality borrowers using FHA are likely to have been disproportionately less successful in winning deals as home sellers choose to buy more credit (the average credit score is 675 for FHA versus 750 for the government sponsored companies) and low funding requirements (the average loan-to-value is 95% for FHA versus a low 80% for GSE). “

The penetration rate of the PMI among new borrowers exceeds the increase in net mortgage lending. Total outstanding mortgage debt was $ 11.44 trillion on June 30, according to the Mortgage Bankers Association, up 1.3% from the first quarter and 5.2% year over year.

The total amount of outstanding mortgage insurance as of the 30th FHA.

In the four years leading up to the pandemic (2016-2019), the PMI’s insurance portfolio grew by an average of 10% per year. But last year that slowed to 8%. Looking ahead, George expects IIF growth of 8.8% this year before declining to 7.5% in 2022 and 5% in 2023.

The MBA expects $ 11.76 trillion outstanding mortgage debt by the end of 2021, rising to $ 12.24 trillion next year and $ 13.1 trillion in 2023.

“The same tailwind for private MI remains: 1) Strong demographic trends with the largest Subset of the population Reaching the typical age First time home buyers; 2) Very strong Appreciation of the home price all other things being equal, borrowers are less likely to be able to afford the 20% down payment to avoid MI, “said George.

This forecast does not include any potential growth from the upcoming change in guidelines by Fannie Mae Allow rental payments as part of the subscription decision.

“Fannie announced that in a recent sample of non-homeowners who were not approved through Desktop Underwriter, 17% of that sample would have been eligible if their rental payment history had been taken into account,” said George. “Therefore, this underwriting change could pull borrowers on the edge between FHA and GSE and provide yet another tailwind for PMI growth.”

Meanwhile, the Biden administration’s FHA mortgage insurance premium reduction is still a very realistic option in George’s view.

“We believe that after the FHA’s fiscal year ends (September 30th) there could be a 25 basis point cut, followed by the release of their annual report, which includes capital, in mid-November. This schedule suggests a possible premium cut could occur in early 2022, “he said.

However, George reiterated his belief that a cut this size only affects the edges of the market, potentially leading to a “mid-single-digit percentage shift” of PMI customers to FHA. Even in the unlikely event of a 50 basis point cut, only 10-15% of home buyers would switch to the FHA product with low down payments.

“With arrears / forbearance rates still elevated, we expect the FHA to remain cautious about maintaining adequate capital reserves until their credit terms can be reevaluated once the FHA forbearances expire in the next few quarters (30th though most Plans have ended by then), “said George.