Lenders now have another choice when it comes to mortgage insurance.
Essent Guaranty Inc. marked its arrival Thursday, announcing that Fannie Mae and Freddie Mac have approved it as an official mortgage insurer, making the Radnor, Pa., company one of only eight with such a designation.
With the approval from the government-sponsored enterprises, Essent can begin writing business. (By law, the GSEs cannot buy or guarantee mortgages with loan-to-value ratios higher than 80% unless they are backed by private mortgage insurance.)
Additionally, Essent said it has won regulatory approval to write business in 45 states.
Mark Casale, Essent's president and chief executive officer, said he is "actively engaged" with a number of lenders and expects to start writing business early in the second quarter. However, his outlook for business in 2010 is modest, taking into consideration the expected slowdown in loan originations.
"It's not about how much business we're going to write this year," said Casale, a former president of rival Radian Group Inc. "Our goal isn't market share. Our goal for 2010, 2011 is really initiating business, establishing relationships with good lender partners that share our approach to the market and maintain our risk management discipline."
Essent's entry into the private mortgage insurance business gives lenders the option of working with a company not bogged down by capital constraints and losses from loans written at the height of the housing boom that have now gone bad.
Elizabeth Malone, a senior vice president at Wunderlich Securities, said the fact that Essent doesn't have such baggage gives it a competitive edge.
"You don't have to overcome the cost of those earlier losses and you can take advantage of the price increases and the tightened underwriting standards that have been adopted by the industry in advance," she said.
Essent, which announced in May 2009 that it had raised $500 million from a group of investors including Goldman Sachs Group Inc. and JPMorgan Chase & Co., is the first private mortgage insurer established since the start of the financial crisis.
It joins a small industry that includes PMI Group Inc., MGIC Investment Corp., Radian, Old Republic International Corp., Genworth Financial Inc., and United Guaranty, a unit of American International Group Inc.
Another mortgage insurer, Triad Guaranty Inc., is in runoff and not writing any new business. In October, Essent agreed to buy Triad's operating platform and technology systems for up to $30 million in cash. (The deal closed in December; the price is partly contingent on Essent's writing a certain minimum amount of business in future years.)
It's been a rough few years for mortgage insurers. As defaults on loans skyrocketed, companies were forced to pay out two and three times more in claims than they collected in premiums.
Essent's arrival has stirred hope that the market is improving.
"This industry probably has a life, even if it feels like it's been on the ropes for the last couple of years, because here's a new entrant," David Katkov, PMI Group's chief business officer, said in an interview in December.
Malone concurred. "The fact that Essent is entering the market now suggests that fundamentally an improvement in the housing market overall is nearer to being achieved than it was a year ago," she said.