A reduction in the Federal Housing Administration mortgage insurance premium is still more likely than not to occur at some point during the next four years, a report from BTIG said.
The Biden administration was
"Our interpretation of the statement is that 'near-term' is 2021 and that the FHA's decision-making process will be tied to the FHA's serious delinquency rate," Ryan Gilbert, an analyst with BTIG, said in the report. "We believe an improving economy and home price appreciation will ultimately lead to normalized
Still, the decision not to cut premiums should enhance the perception of the mortgage insurers in the eyes of investors and even if there was to be one, it would have little practical effect, Bose George of Keefe, Bruyette & Woods said in a note issued after Fudge's announcement.
"While we continue to think that the impact of any FHA premium cut would be modest in terms of shifting share from the mortgage insurers to the FHA, we see this news as positive for the mortgage insurers," George wrote.
During the Great Recession, the FHA became the dominant player for providing credit enhancement for low down payment mortgages. However, over the years, the private mortgage insurers had been gaining market share as measured by insurance-in-force.
U.S. Mortgage Insurers, the trade group for the PMIs, welcomed the announcement, calling it a prudent policy that will continue to provide borrowers access to credit while mortgage rates remain near historic low levels.
"This enables the FHA to better manage the financial challenges that have arisen due to the pandemic and ensure taxpayers are safeguarded from unnecessary credit risk," USMI president Lindsey Johnson said in a press release. "The private MI industry has the capacity and the desire to help even more families become homeowners through the conventional market."
The fear among stock market investors is that an FHA premium cut could again shift business away from the private mortgage insurers.
At the end of the federal fiscal year 2020, the FHA had $1.46 trillion in insurance in force.
As a group, the six active private mortgage insurers had $1.29 trillion as of Dec. 31, according to respective Securities and Exchange Commission filings. Arch had $280.6 billion; MGIC, $246.6 billion; Radian, $246.1 billion; Genworth, $207.9 billion; Essent, $198.9 billion; and National MI, $111.2 billion.
Three companies that are in run-off status, which also still have insurance in force on their books, would bring the market share split even closer. In November 2019, they combined
However, the overlap in the market between FHA and private MIs for new business is shrinking, Gilbert noted in his report. He pointed out that in the third quarter, 78% of the FHA's business was for loans with loan-to-value ratios between 96% and 98%. This compared with 9% on average in that same band for the mortgage insurers.
"Due to low market overlap, we estimated that a 25 bps reduction in the FHA MIP would only reduce PMI premiums by 1 bp and our return on equity estimates by 30 bps," Gilbert continued.
However, George had previously expressed concern that
In 2020, private mortgage insurers supported $600 billion of mortgage originations, with 65% being purchases and 35% refinancings, according to USMI.
For the full year, Arch wrote the most business, edging out MGIC, $112.2 billion to $112.1 billion. Third in new insurance written was Essent at $107.9 billion, followed by Radian, $105 billion; Genworth, $99.9 billion; and National MI, $62.7 billion.
