The growth of private mortgage insurers' portfolios will accelerate in the coming years, according to a report expected to be released today.
The report, by RFA Dismal Sciences, an economic consulting firm, was commissioned by PMI Mortgage Insurance Co., one of the biggest companies in the business.
Mortgage insurance in force will increase 6% this year and 8% on average in the next three, to $782 billion by the end of 2003, RFA predicts. That would be faster than last year's 5.5% and 1998's 2% but slower than the 11% average of the 1990s.
Private mortgage insurance is usually required for loans with low down payments. But several factors have constrained the growth of this business in recent years, said Mark Zandi, chief economist of RFA, which is based in West Chester, Pa.
Two years ago falling interest rates sparked a refinancing boom. When homeowners refinance, their homes are appraised, and many find that their equity has increased so much that that they no longer need insurance.
Strong growth in home prices also eliminated the need for many homeowners to buy insurance when they refinanced or traded up. And a surging stock market has added to household wealth, enabling more people to make large down payments.
"Each of those things is going to be less important," Mr. Zandi said. "The forces that have constrained growth below its long-run average have already begun to abate, especially refinance activity, which has fallen off quite considerably" as rates have risen in the past year.
The growth of insurance in force will slow to about 6% per year by the end of the decade, RFA predicts. Its forecast assumes no change in the competitive or regulatory landscapes for mortgage insurers - "a tall assumption," Mr. Zandi conceded.
Traditionally, mortgage-insurance borrowers have been homeowners with incomes near the national median. But most of the growth in mortgage insurance over the next 10 years will come from lower-income households and immigrants, Mr. Zandi said.
"To take advantage of this environment," he said, mortgage insurers will have to be "very aggressive in promoting and courting these various groups that are going to demand their product."
Such a strategy may also entail more credit risk. But W. Roger Haughton, PMI's chairman, said such loans will perform very well if the lending "is done correctly, with the proper education."
Mr. Haughton said PMI has insured more than $11 billion of affordable-housing loans since 1993. Delinquencies and foreclosures on these loans has been very low.
