Mortgage Insurance Industry Planning a PR Counterattack
Hochstein, Marc, American Banker
A newspaper columnist calls their service "one of the crummiest deals around." Lawyers accuse more than half of the industry of making kickbacks. A U.S. senator describes its practices as "unethical."
Finally, private mortgage insurers are preparing to fight back.
Executives at the top mortgage insurers will not say exactly what they plan to do, but late last year their trade group, the Mortgage Insurance Companies of America, retained Porter Novelli, a prominent consumer public relations firm known for its work with Gillette Co., Procter & Gamble, and anti-tobacco activists.
"We've recognized that it's an issue for our industry," said Charles M. Reid, chief executive officer of United Guaranty Corp. in Greensboro, N.C., and current president of the trade group. (The post rotates among the chiefs of its seven member companies.)
You would think the industry has plenty to brag about. It has played a crucial role in the housing finance system. Without its service, many homeowners would have been unable to buy and the nation's financial institutions -- and arguably the government -- would be at greater risk.
Private mortgage insurance protects the holder of a loan in case the homeowner defaults. It is usually required when a homebuyer cannot put down 20%. According to the Mortgage Insurance Companies of America, last year the industry insured $189 billion of new mortgages for about 1.45 million homeowners.
Indeed, decades ago the media touted private mortgage insurance as a less expensive and simpler alternative to the government's FHA program and hailed Max Karl, founder of Mortgage Guaranty Insurance Corp. and inventor of modern private mortgage insurance, as a housing hero. Mr. Karl died in 1995.
A crucial turning point came in the late 1990s, when it was revealed that some borrowers had been paying monthly insurance premiums long after they had built substantial equity in their homes. An uproar led to legislation mandating automatic cancellation once a borrower's equity reaches a certain level and disclosure to the borrower when and how coverage can be canceled.
"The mail would pour in from furious people" who tried to get their policies canceled but couldn't, recalled Jane Bryant Quinn, the well-known personal finance columnist.
Critics say the insurers dropped the ball.
"They were, for many years, collecting premiums from consumers whom they had every reason to know were not real economic dangers," said Kenneth Harney, a syndicated writer who chronicled the battle over the cancellation bill in The Washington Post. "For years they knew about it and did nothing about it. When it became a public matter, they were very slow to come to the reform party."
The insurers "did not step to the fore, grab the problem by the horns, and say, 'Let us straighten this out,' " Mr. Harney said. "Instead, they were content to say: 'We are passive players. We are told by our insured customers when they want to cancel.' "
However, he added, after being "dragged to the table" the insurers "were ultimately involved in the final fine-tuning" of the cancellation bill, which was passed in 1998 and took effect last year.
Ms. Quinn agrees. "When the uproar did start and the issue was in Congress, the insurers were not taking a pro-consumer position. They were very tough on the side of 'We don't need anything,' " she said. "During that period, you didn't get an awful lot of sympathy from the (mortgage insurance) people for what was bothering the consumer."
The insurers say they were not to blame, that before the legislation was passed it was the investor's prerogative to decide when a policy could be cancelled and the servicer's job to terminate it. They insist that they supported the cancellation bill from its inception, that they had problems with details of the early drafts but always backed the pro-consumer principles behind it. …