In this report, we assess the value proposition of private mortgage insurance (MI) and its fate in the still-uncertain future of U.S. mortgage finance. MI has historically been a business that proved its worth more by reference to governmental edict than by persuading counterparties that MI makes a meaningful dent in credit risk. The value proposition was further impaired by rescissions and bankruptcies during the financial crisis. Despite resurgent volumes riding on the back of higher purchase originations and the GSEs’ new 3% down programs, does MI have a meaningful, long-term role in mortgage finance? We think so, but only if structural weaknesses are quickly remedied before the GSEs and mortgage counterparties figure out alternative credit-risk mitigation products that cost less even if they don’t necessarily provide comparable credit-risk mitigation.
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