Private Mortgage Insurers Strike Back Against the FHA

Bing Bai

WASHINGTON, DC—Which is better – buying or renting? This question has been debated by consumers, by finance experts and of course, by apartment and condo and single-family home developers within the industry. The answer, frustratingly, has been…it depends. It depends on your age and lifestyle and where you want to live and, of course, your finances. Some renters want to be homeowners but cannot base the rigorous mortgage requirements put in place after the crash. Other renters can pass them, but are leery of the monthly payments especially as housing prices continue to rise. So here is a new data point that could, in some cases, nudge the buy-versus-rent decision in favor of buying, courtesy of an April 2016 report by the Washington DC-based Urban Institute’s Housing Finance Policy Center. This month private mortgage insurers have made their counter move against last year’s reduction in insurance premiums by the Federal Housing Administration http://portal.hud.gov/hudportal/documents/huddoc?id=FHAPremiumsFAQ.pdf. Briefly, at the start of the year, the Obama Administration made a 50 basis point cut in the annual insurance premiums, making FHA mortgages more attractive than GSE mortgages for both low and high credit score borrowers. The impact was immediate and significant, according to Bing Bai, a research associate with the Housing Finance Policy Center. The FHA’s share of the mortgage insurance market jumped to 40% in 2015 from 34% in 2014, he told GlobeSt.com. At same time the PMI providers’ share shrank to 35% from 40% in the same time period. A response from the private-mortgage insurance companies was to be expected but one unforeseen consequence was the private insurers’ decision this month to target borrowers with FICO scores over 700. They are offering premiums even lower than what the FHA is offering, Bai says. For borrowers with a FICO score under 700, however, premiums have been raised. How this will play out is fairly straight forward: Bai expects borrowers with higher scores to flock to the private mortgage insurance companies, leaving the borrowers with lower scores to consolidate at FHA. As for borrowers with good credit, they now have a cheaper loan option to weigh alongside all the other factors why they do, or don’t want to be a homeowner.