To the Editor:

Mortgage Insurance Companies of America [the trade association of the private mortgage insurance industry] takes issue with your Sept. 15 news brief "Most Mortgage Insurance 'Pointless.' "

Private mortgage insurance is the key that unlocks the door to homeownership. Twenty million American families, many of them first-time buyers, have already benefited from private insurance. By protecting lenders against losses associated with borrower default, private insurance enables a homebuyer to purchase a house with as little as 3% to 5% down, and sometimes even less.

While home price appreciation is usually viewed favorably by homeowners, it is not a permanent state of affairs and does not necessarily protect the lender. It has often been our experience that when home prices are rising very rapidly in an area, as demand for homes exceeds the supply, then over time the market will correct, and home prices will fall.

Los Angeles and Houston provide real-world examples. In Los Angeles County, property values fell 29% between 1990 and 1996 after increasing 62% from 1987 through 1989. Between 1983 and 1988, property values in Houston declined 27% after rising 21% the prior three years.

The rate of foreclosures in Houston created by the steep drop in home prices was double the rate of foreclosures experienced by the entire nation during the Great Depression. As many as 30% of Houston's outstanding home loans wound up in foreclosure, compared with 15% during the Great Depression.

We certainly agree that consumers should not have to pay for mortgage insurance once they no longer need it, and we continue to educate and inform consumers about the requirements for mortgage insurance cancellation. However, the HomeGain study - which your publication used as the basis for its report - relies on fluctuations in market appreciation that may have no real bearing on accrued equity.

Suzanne C. Hutchinson
Executive vice president
Mortgage Insurance Companies of America

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