There is more than enough capacity for the remaining private mortgage insurers to handle the current volume of low down payment loans as PMI and Republic Mortgage Insurance Co. stop writing new business, industry executives say.
The other real concern is headline risk, which is not only affecting the stock prices of the publicly traded MIs, but also might have an impact on whether mortgage insurance is included in the definition of qualified residential mortgage.
It is the relatively short period in which the two companies announced they would stop writing new business that has "added to the difficulty the market has in absorbing the shock. I think the timing of how fast it happened resulted in a greater shock now," said S.A. Ibrahim, chief executive of Radian Guaranty.
As of press time, Old Republic International, RMIC's parent, had not received regulatory approval to write new business out of a separately capitalized subsidiary.
If things stay the same, its risk-to-capital waiver expires on Aug. 31 and it will stop writing policies.
PMI, meanwhile, was placed in supervision by the Arizona Department of Insurance and was ordered to stop issuing commitments on Aug. 19. The parent company is actively looking for new capital.
Those two companies combined had an approximate market share of 20%-25% , explained Radian Guaranty president Teresa Bryce Bazemore, who added that is an amount the remaining players can absorb easily.
Ibrahim said it was "very sad what happened to two companies that served the industry well and were great peers and great competitors."
Mike Zimmerman, senior vice president of investor relations at MGIC Investment Corp., said the remaining players in the business, all of which are below the 25-to-1 risk-to-capital level (except Genworth, which is at that mark) have capacity to write business.
"With the low volume of originations, quite frankly there is really not a concern about capacity from the MI perspective," he said.
The short-term reaction was seen in how investors sold off Radian and MGIC in the days following the PMI announcement.
Both firms hit 52-week lows on Aug. 23, a day when the Dow Jones Industrial Average closed over 320 points higher than the previous day.
This investor perception was "painting the whole industry with the same brush," Ibrahim said.
On the other hand, for the healthy companies like Radian, he continued, it means they can pick up market share of higher-quality low down payment business.
A statement from the newest player in the MI business, Essent Guaranty Inc., notes that it is backed by $600 million of private capital and it "will continue investing its capital and deploying resources fully to support its lender partners."
Ibrahim said Radian would have to address mortgage lender concerns over time, since lenders are the company's customers.
On the other hand, those same customers are calling Radian and looking to shift business. The company's sales team has been told "to take the high road" when discussing RMIC and PMI.
Bazemore said that when Old Republic first made the announcement about RMIC, some of its customers reached out to Radian immediately about doing business with the company. The same thing is happening with PMI customers.
While private MI penetration is slowly regaining ground from the Federal Housing Administration, it gives those companies that are still underwriting an opportunity to grow their business.
Zimmerman said overlays by the secondary market and lenders are impacting revenue, but he agreed private MIs are regaining market share.
As a result, part of the investor pressure on stock prices has as much to do with the lack of revenue growth as with legacy credit costs, he said.
Ibrahim and Bazemore both have a background in the mortgage banking business, and having been in the customers' shoes, Ibrahim said, it is understandable that the larger lenders would need some assurance by doing such due diligence. Smaller originators typically rely on measures such as the risk-to-capital ratio for assurance.
Asked if RMIC and PMI stopping writing new business makes the industry stronger or weaker, Ibrahim said there was a concern from the government-sponsored enterprises and investors about whether there might have been too many companies writing business.
So it could be seen as strengthening the players who remain in the business.
In Radian's case, it has not made any secret of the fact that there is $630 million in cash at the holding company level that it can downstream, if need be, to its mortgage insurance underwriting entity.
