Mortgage insurance companies, determined not to lose market share, are scrambling to offer monthly payment programs similar to the one initiated by GE Capital Mortgage Corp. in June.
Commonwealth Mortgage Assurance Co., Philadelphia, launched its plan on Sept. 1. Republic Mortgage Insurance Co., Winston-Salem, N.C., and United Guaranty Corp., Greensboro, N.C., are shooting for rollout dates later this fall.
PMI Mortgage Insurance Co., San Francisco, is considering a monthly program but is also looking at other ways to reduce closing costs, including lender financing of the first year's premium, according to Tony Powter, a dent at PMI.
In June, the GE unit, based in Raleigh, N.C., was first out of the blocks with a monthly payment plan. It was followed closely by Mortgage Guaranty Insurance Corp., Milwaukee, which announced its version late last month. Mortgage insurance is generally required for mortages that have a down payment of less than 20%.
The mortgage insurance industry is hoping that monthly payment plans, which eliminate the traditional one-year premium at closing, will prove to be a powerful tool to bring low-income and first-time homebuyers into the housing market.
Commonwealth Mortgage's program is up and running in all states, according to James Miller, president. Commonwealth will allow the originator to require one to three months' premium at closing.
Commonwealth's plan will cost about 4 basis points of the mortgage amount more than conventional mortgage insurance.
Mr. Miller expects the monthly plan to eventually compose about 15% of Commonwealth's dollar volume, with the bulk of the volume being holders of 95% loan-to-value mortgages, "We'll do some business with people with higher equity levels, but I expect that more sophisticated people will conclude that they are better off with the traditional, less expensive mortgage insurance," he said.
United Guaranty Corp.'s program is scheduled to commence Oct. 1. It, too, will cost about 4 basis points more than traditional mortgage insurance, according to Chris Avrin, senior vice president at United Guaranty. The expectation is that monthly payment plans will account for about 24% of 1994 volume.
Republic Mortgage Insurance will begin offering on Nov. 1 a monthly payment program that will match the price of Commonwealth and United Guaranty's programs, according to William Simpson, president of Republic.
Republic is moving forward more slowly because it expects the new program to cause some difficulties for servicers that handle mortgages carrying monthly payment mortgage insurance.
Because servicers will have to traffic the extra payments engendered by the plans, many in the industry expect servicers to experience difficulty adjusting.
BancBoston Mortgage Corp., a major servicer based in Jacksonville, Fla., has engaged Computer Power Inc. to change a workstation to accommodate monthly payment plans. "It will take 60 days to complete, and then we'll be able to handle monthly insurance payments," said Bill Glasgow, executive vice president of BancBoston Mortgage. Despite the added costs, Mr. Glasgow sees the development as an opportunity to win market share.