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Mortgage Insurance


Overview: Private mortgage insurance, known as PMI, dates back to the 1880s, when mortgage banks were first formed to finance loans to people securing land in the Midwest and West. PMI promotes home ownership by facilitating the flow of credit from lenders and investors who might not otherwise have the capacity or desire to assume incremental credit risk. PMI enables those lenders to mitigate default risk when a borrower makes a smaller down payment, which inherently increases the risk of loss.

The housing collapse of 2008 placed significant strain on the PMI industry. Mortgage insurers' shift toward "affordability" products and subprime loans increased their exposure to the rise in mortgage defaults during the crisis. Following the difficulties during the crisis, PMIs are benefitting greatly, according to Standard & Poor's, from improving economic and housing fundamentals, and from the tightened underwriting of mortgage loans.

In 2020, the PMIs had a sluggish start in the first few months of the COVID-19 pandemic, but recovered in the remainder of the year. According to the U.S. Mortgage Insurance (USMI), a trade organization that represents PMIs nationwide, the PMI industry logged a banner year in 2020, supporting more than 2 million low down payment borrowers of approximately $600 billion in mortgage originations, with 65% going toward home purchases and 35% to refinancing. The record-high volume in 2020 is attributed to low interest rates and historically low refinance rates.


Status: State insurance regulators are actively studying what changes are deemed necessary to the solvency regulation of mortgage guaranty insurers. The NAIC's Mortgage Guaranty Insurance (E) Working Group was formed by the Financial Condition (E) Committee in late 2012. This Working Group is developing changes to the Mortgage Guaranty Insurance Model Act (#630) and other areas of the solvency regulation of mortgage guaranty insurers, including, but not limited to, revisions to Statement of Statutory Accounting Principles (SSAP) No. 58 - Mortgage Guaranty Insurance, and developing an extensive mortgage guaranty supplemental filing. Exposure draft comments were received and discussed at the NAIC National Meeting Spring 2023 and the Working Group is continuing to edit and finalize the Model Law #630 throughout 2023.


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