2014 Mortgage Guaranty Insurance Report

2014 Mortgage Guaranty Report

Residential mortgage guaranty insurance provides protection to lenders against default by borrowers who initially have less than 20 percent equity interest in the mortgaged property.  This form of insurance is designed to stimulate home ownership by giving consumers with lower down payments access to credit. Generally, lenders require mortgage guaranty insurance for loans exceeding 80 percent of the value of a home. 

  • The year 2014 was the second time since 2006, that residential mortgage insurers incurred losses less than the amount collected in premium, both in Missouri and countrywide.  The loss ratio, or the amount of incurred losses divided by premium, decreased from 61.1 percent to 29.4 percent. 
  • Paid losses in Missouri have declined over the prior year, but were still at the ninth highest level in over 30 years since the DIFP began collecting data.  In 2014, insurers paid out over $40 million to cover residential loan defaults.  Nationally, these same insurers paid losses totaling $3.1 billion, an amount that excludes payments from insurers that do not operate in Missouri.   
  • Mortgage guaranty insurers incurred net losses for six straight years from 2007 - 2012.  In 2010, insurers incurred losses of $99.2 million, equal to 107.7 percent of premium earned in that year.  This percentage increased to 123.5 percent in 2011, decreased to 102.3 percent in 2012, and 61.1 percent in 2013.  In 2014, this percentage again declined to 29.4 percent.  Incurred losses in part represent insurers expectations of how much they will eventually pay out on claims incurred during a year.  The amount of claim reserves, or money insurers set aside to cover such claims, declined by $21 million from the prior year. National loss ratios for these insurers declined from 228.7 percent in 2008 to 37.9 percent in 2014. 
  • Industry wide in 2008, contingency reserves were reduced for the second time since 1985.  Such reserves declined again in 2009 - 2012, but increased in 2013.  Contingency reserves are special reserves that mortgage guaranty insurers are required to maintain by statute.  They are equal to 50 percent of premium, and must be maintained for 10 years, but may be used to cover losses in excess of 35 percent of premium in a given year.  Contingency reserves covering Missouri losses in 2008 declined by a modest $29.1 million, but more substantially in 2009 ($67.2 million) and 2010 ($54.6 million).  In 2011, contingency reserves increased by almost 3 million.  In 2012, contingency reserves declined by $7.7 million.  In 2013, contingency reserves increased by $7.7 million and again in 2014, by $19.7 million.
  • The housing crisis has also contracted the market for mortgage guaranty insurance, as evidenced by premium.  In 2008, mortgage guarantee premiums peaked at $113.6 million, but declined to $69 million in 2014.

This report was compiled using information submitted by the insurance companies. While every effort is made to ensure accurate data, the accuracy of this report is dependent on each company’s data. Any questions about this report should be directed to the Statistics Section, Missouri DIFP, P.O. Box 690, Jefferson City, MO 65102-0690.

Additional copies of this report can be received by sending a written request, with payment of $35 per copy, to this same address.