MGIC Investment Corp. is cutting mortgage insurance premiums to better compete with the Federal Housing Administration.
In a filing with the Securities and Exchange Commission on Tuesday, the Milwaukee insurer said that beginning May 1 it will offer lower rates for borrowers with credit scores of 720 or greater, and higher rates for borrowers with credit scores between 620 and 679. There will be no change in rates for borrowers with scores between 680 and 719, MGIC said.
Previously, MGIC did not include a borrower's credit score in its pricing model. Lenders that find the transition difficult have the option of continuing to use the insurer's old rate structure, MGIC said.
Since the housing bubble burst, the FHA has become a more formidable contender in the mortgage insurance business, gaining market share in the coverage of loans with small down payments as private insurers tightened their underwriting standards.
In fact, MGIC said in the filing that it did not consider the FHA a significant competitor until 2008.
Recently, the FHA announced steps to improve the quality of its loans, including requiring higher down payments for borrowers with lower credit scores and raising the up-front mortgage insurance premium 50 basis points, to 2.25%, to cover rising claims and losses.
MGIC said its pricing changes will make the company more competitive with the FHA for loans extended to more-creditworthy borrowers. As evidence that the company has tightened its underwriting standards, MGIC said a "substantial majority" of the new business it has written since the second half of 2009 would have been eligible for the lower premiums had they been in place.
Though the rate changes will put MGIC on a more level playing field with the FHA in terms of pricing, the company admitted that "there may be advantages to lenders to insure loans through the FHA, including higher servicing fees than on conventional loans."
MGIC said the rate changes are subject to regulatory approval.