When the Going Gets Rough, the Mortgage Insurance Industry Gets Going

It has been pretty rough for the mortgage insurance industry this year. As the collapse of the subprime wreak its havoc on the economy, the mortgage insurance industry has not been spared. But when the going gets rough, the industry continues to get going.

As they say, in every catastrophe, there is hope. At the end of the storm is a ray of light. Same goes for the mortgage insurance industry. With tight credit procedures being implemented by lending institutions, there is a foreseen increase in demand for mortgage insurance.

What homebuyers usually do when they do not meet the 20% required downpayment is to find a ‘piggyback’ mortgage wherein they avail of a second minor mortgage at a higher interest rate to be able to qualify for the downpayment for the home. Now that they find it more difficult to do a ‘piggyback’ mortgage, these same homebuyers or borrowers are turning in to private mortgage insurance or PMI as an option.

Before, most people do not realize the benefits of private mortgage insurance. They see it as an added expense and unnecessary until a federal law mandated that the interest payment under the private mortgage insurance be tax deductible.

Although the mortgage insurance industry has been severely hit, there are two (2) viable options for them to recover from such losses:

1. Increase the rate of interest for the private mortgage insurance
2. Raise the bar for the availing of the insurance

Since the subprime collapse, getting mortgage insurance has gotten more difficult. One cannot blame the insurer. They are dealing with negatives on their revenues and with more and more people defaulting on their payment, they have to deal with greater risk.

Yet the importance of mortgage insurance can never be undermined. For whatever type of mortgage insurance one decides or is required to avail, it gives one a sense of security and peace of mind. Mortgage insurance is also a win-win situation for both lenders and borrowers, especially in the case of private mortgage insurance. It is a protection for both lenders and borrowers. It covers for losses from defaults on the lender’s part and it enables the borrowers to access their homes at a quicker time and even with less than 20% downpayment.

The profitability of the mortgage insurance industry may have suffered from the collapse of the mortgage industry per se, and it may take some time before the mortgage insurance industry be back on its own profitable feet. They are not immune from the setbacks suffered by the mortgage industry; they are not shielded against the losses emanating from bad mortgages give out the past years. But it is also in this situation that the mortgage insurance industry will ascend. Given the increase in demand for mortgage insurance, the industry will be able to raise the standards of business without having to worry for a significant loss.

In due time, the industry will recover from losses, and with the raising of bar, more people will experience the benefits of mortgage insurance.