Fiscal Cliff Deal Boosts Confidence in Mortgage Insurance Industry

By Gretchen Wegrich

Homeowners who have an adjusted gross income of less than $100,000 breathed a sigh of relief on Jan. 1, when the fiscal cliff deal ensured that a tax deduction for their mortgage insurance premium would survive. The tax break is not only beneficial to homeowners, it also boosts the confidence of private mortgage insurers who are striving to make smart choices and ensure their business’ future in mortgage financing.

The fiscal cliff deal’s continuation of the tax break ensures the recognition of the “value of private mortgage insurance to borrowers and to the housing market helps assure that the industry has and will continue to play a key role in a revitalized housing market,” said Teresa Bryce Bazemore, president of the Mortgage Insurance Companies of America, in a statement.

As reliance on private sector capital for residential mortgages increases, first time home buyers and low-to-moderate income families will directly benefit from the tax break, Bazemore noted.

Mortgage insurance faces an uncertain future, as the industry awaits new regulations set to be released this month, including the definition of a qualified mortgage and rules defining a qualified residential mortgage (risk-retention rule) governing the secondary mortgage market.

In the face of changes, mortgage insurers continue to stand behind their claim that switching the housing finance system from agency-control to a private-label market will present insurmountable challenges without mortgage insurers on hand to shoulder the risks formerly handled by federal housing agencies.

For mortgage insurance companies who are shifting their focus to the private label market, experts such as Steve Horne, CEO of Wingspan Portfolio Advisors, believe that the mortgage insurance deduction will have a positive effect.

Post fiscal cliff, the mortgage finance industry is experiencing “incremental changes,” said Horne.

Currently, the majority of downpayment financing is being managed by the FHA, said David Stevens, CEO of the Mortgage Bankers Association. Stevens noted that private mortgage insurers facing a pricing disadvantage for insurance deals taking place outside the scope of the FHA could also hinder the overall market.

The priority, said Stevens, “is moving mortgage financing away from government agencies.”

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.