Helps borrowers’ access homeownership sooner
Amassing a large down payment can be one of the biggest hurdles to homeownership, particularly for first-time borrowers. It could take 27 years for a middle class worker to save up for a 20 percent down payment. Private MI helps bridge the gap and makes it possible for borrowers to qualify for a mortgage with a down payment as low as 3 percent. In 2023:
- Nearly 800,000 homeowners purchased or refinanced a mortgage.
- Nearly 35 percent were borrowers with incomes below $75,000.
- 64 percent of purchase loans covered by MI were for first-time homebuyers.
Further, MI doesn’t just help borrowers get into a home, it helps them stay in their home. If a borrower experiences financial hardship, MI companies work with servicers to help borrowers avoid foreclosure through loan modifications and other loss mitigation alternatives.
Protects taxpayers from mortgage credit risk
Private MI serves as the first layer of protection against the risk of loss on a mortgage in the event a borrower is not able to repay the loan and there is not sufficient equity in the home to cover the amount owed.
Most mortgages in the conventional mortgage market are bundled into securities backed by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Fac. This allows mortgage lenders to continuously offer credit to new borrowers for their home financing needs. In other words, it keeps the conventional market liquid, so that consumers can freely shop around for their mortgage needs and find many options.
Pursuant to a requirement established by the U.S. Congress, the GSEs require low down payment mortgages, which carry higher risk of default, to include MI to reduce exposure to this risk. The conservatorship of the GSEs means the government effectively guarantees these mortgages, but the inclusion of MI benefits the GSEs as private capital stands to absorb any potential losses before the GSEs do. Every dollar paid by a USMI member company in claims is a dollar that the U.S. government – and therefore taxpayers – potentially save.
Provides stability to the housing finance system
Private MI helps stabilize our nation’s housing finance system by making greater use of private capital to “de-risk” the GSEs and lower the exposure and costs to the government and taxpayers.
- Private mortgage insurers covered nearly $60 billion in claims for losses since the GSEs entered conservatorship in 2008.
- Nearly $1.6 trillion in mortgages currently outstanding have private MI protection, reducing taxpayer exposure to losses.
- Private mortgage insurers are attracting new private capital, with about $16.8 billion in new capital invested since 2007.
- Private MI supported approximately $283 billion of purchase and refinance mortgage originations in 2023.
- Private MI accounted for nearly 48 percent of the insured market in 2023.
Is a temporary cost for borrowers
Unlike MI premiums on FHA and other government-backed loans, private MI paid by the borrower is temporary and can either be cancelled upon request under certain circumstances, or automatically terminates when the original loan-to-value (LTV) ratio reaches 78 percent. When private MI payments are cancelled or terminated, the homeowner’s monthly mortgage payment is reduced and leads to potential savings over the life of their loan.
- Borrower-Requested Cancellation. When a borrower is current on their payments, and the mortgage loan balance is scheduled to reach or reaches 80 percent of the original value (essentially when equity in the mortgage reaches 20 percent through borrower payments), they can initiate the cancellation process by contacting their loan servicer. Cancellation is subject to certain conditions established by the mortgage holder, verification that the property value has not declined below its original value, and requirements that there be no subordinate liens. Borrowers may also be able to initiate cancellation if 20 percent equity is established based on the current value of their home and certain requirements are met including a good payment history and documentation of the property’s value.
- Automatic Termination. Borrower-paid MI terminates when the mortgage is scheduled to reach 78 percent of the original value of the property and the borrower is current on payments.
Equity is built through regular mortgage payments, or through home price appreciation. A home equity loan or HELOC (home equity line of credit) does not impact the LTV or the private mortgage insurance on the first lien mortgage. The LTV of the primary mortgage is calculated at the time of loan origination and therefore the presence of a second lien, such as a home equity loan or HELOC, does not impact the scheduled amortization of the mortgage. A conversation with the mortgage servicer is the first step, often followed by a home appraisal.
Tax treatment of MI premiums
From 2007 through 2021, an average of 3.4 million homeowners annually claimed tax deductions for MI premiums, and a total of $64.7 billion in deductions were claimed during that time. This important tax policy has supported low- and moderate-income homeowners, who on average have received an annual deduction of $1,454. That amount was higher for tax year 2021 as qualifying homeowners received an average deduction of $2,364 according to IRS data. The deduction was last extended in December 2020, which covered tax filings for 2020 and 2021. USMI continues to call on Congress to support existing homeowners and prospective homebuyers by extending the deduction and making it permanent.
Provides lenders with competitive, simple way to reduce risk
The MI industry is unique in providing lenders, large and small, with a competitive, affordable, and readily accessible way to reduce credit risk with private capital. Lenders and borrowers benefit from the industry’s data-driven pricing and credit terms.
MI enables lenders to provide borrowers with qualification and cost information at the time of application. Private MI companies underwrite a significant portion of mortgages, serving as a second pair of eyes during the underwriting process and providing added confidence for the lender to make the loan.
