PMI Mortgage Insurance Co. and CUNA Mutual Insurance Co. signed an agreement Thursday to form a new company to offer mortgage insurance for credit union members.
The new company, CMG Mortgage Insurance Co., will be a joint venture operated by the parents. PMI, a subsidiary of Allstate Insurance, is one of the largest mortgage insurers in the country. CUNA provides insurance services to credit unions.
CMG Mortgage Insurance will be the ninth, and probably the smallest, entrant into the mortgage insurance sweepstakes.
Mortgage insurers guarantee the repayment of a portion of the principal of mortgages with down payments of less than 20%, thus making them salable in the secondary market.
CMG Mortgage Insurance will compete with other mortgage insurance companies to capture the growing number of loans being made through the nation's more than 13,000 credit unions. That market, about $2 billion last year, has grown rapidly in recent years. as credit unions diversify.
The new entity hopes to capture 10 to 15% of that market initially, eventually ramping up to between 35% and 40%, according to company officials.
"CMG will help fulfill a need in the credit union market for high loan-to-value lending," said Roger Haughton, president of PMI Mortgage Insurance, "we will really focus on that market and will be able to provide special products to fit its needs.'
Credit Unions are currently served by mortgage insurance companies, including PMI. Mortgages made through credit unions use mortgage insurance about as often as the general population, according to Mr. Haughton, but are less likely to have loan-to-value ratios above 90%.
Perhaps because of the higher average down payments on credit union mortgages, delinquencies occur less often, about 33% less than in the general population.
If this holds true for the loans insured by the new company, CMG Mortgage Insurance may elect to cut premiums to match loan performance. This is a practice not widely followed in the industry.
The company will not initially have a credit rating, but plans exist to seek one. It will be able to operate in all states.
PMI will handle underwriting and claims while CUNA will concentrate on sales and marketing.
The new company was actually formed from the remains of Investors Mortgage Insurance, a mortgage insurer that was forced to stop writing new business in the late 1980s after experiencing high losses.
Investors Mortgage was recently acquired by CUNA. That move was made in order to acquire Investors' licenses.
CUNA Mutual approached PMI about the joint venture, according to CUNA president Richard M. Heins.
"We reviewed the entire private mortgage insurance industry... and choose PMI because of their strength in technology and their financial soundness."