As Stuart Braman sees it, field representatives of mortgage insurance companies spend too much time in frivolous attempts to win business.
"A lot of them show up in the morning with doughnuts so that mortgage agents remember them," said Mr. Brafman, president of Amerin Guaranty Corp.
Amerin, a start-up operation in Chicago, fields no representatives at all. As a result of the costs savings, Amerin can then offer less expensive insurance.
Lenders Signing Up
The idea seems to be catching on. Mr. Brafman says eight lenders are scheduled to start using the product in the next few weeks, joining Norwest Mortgage, which began offering Amerin insurance in April.
Forty-five other lenders are seeking Amerin's approval to offer the product, he said.
Amerin, headquartered in Chicago, operates on the premise that it can capture a portion of the market by delegating underwriting authority to mortgage lenders.
Its insurance is "lender-paid," meaning the lender pays for mortgage insurance and passes the cost along to the homeowner through a higher mortgage rate.
Mortgage lenders, using underwriting guidelines approved by Amerin, will make underwriting decisions independently.
Mr. Brafman says that the economies engendered by not having a corps of field agents, as well as a streamlined processing and payment process, will allow Amerin to undercut its competition's premiums by roughly 15% to 20%.
Lenders, of course, will have a choice. They can use this as a source of income or, if they want to go after market share, can pass the savings along to the consumer. From the consumers' standpoint, since the insurance is added to the interest rate, it will represent a tax benefit.
A Key to Success
Lender-paid insurance also offers consumers the advantage of lowering the out-of-pocket expense, a point especially important to first-time homebuyers.
Crucial to Amerin's success will be its ability to identify and do business with mortgage lenders, which will turn around higher-than-average quality insurance candidates.
Amerin is "seeking out lenders with low default rates which do national business and generate volume of good-quality business," according to Mr. Brafman.
Amerin offers its customers two basic types of working agreements.
Under one, mortgage lenders will be be charged under a fixed schedule of rates. The other program will have a lower starting point in premiums, but the lender's loss experience will be examined after four years. Depending on the results, premiums may fall or rise.
Though all agree that it is too early to judge Amerin's success, James Schmidbauer, a mortgage insurance analyst at Moody's, thinks that, at the least, Amerin will force the industry to examine its margins and the way it reaches the customer.