The U.S. mortgage insurance market is on the cusp of a major revolution, but not for the better. The problems stem from the 2008 worldwide economic recession. The recession took a massive toll on the U.S. housing market, resulting in a crisis that persists to this day. Several insurance companies that specialized in mortgages floundered in the wake of the recession and those that survived now hold too much risk to continue writing policies.
Insurers lost billions as a result of the housing crisis, losing much of the surplus capital they had garnered in previous years. According to federal regulations, insurers cannot harbor more than a 25-to-1 risk-to-capital ratio. Today, most mortgage insurers have either surpassed that limit or are on the verge of crossing the line. This has led regulators to order insurers to disallow companies from writing new policies. Those that have yet to reach this ratio limit have been given federal waivers that will allow them to continue writing policies in an attempt to stabilize the market.
The fact that mortgage insurers are doing so poorly does not bode well for the fragile housing market. Coupled by the fact many blame these insurers as contributing to the recession, consumers, regulators and financial groups alike are unwilling to invest in these companies more than they already have. The housing market could be in for some major changes as insurers and regulators begin to take a hard look at what can be done to fix what was broken.