Analysis of 5.7 million low down payment loans shows significantly more insured loans survived the housing crisis
RICHMOND, Va., July 26, 2011 /PRNewswire via COMTEX/ -- Genworth Financial, Inc. (NYSE: GNW) today made available the results of an independent study conducted by Promontory Financial Group which found that among loans originated prior to the collapse of the housing bubble, low down payment mortgages with mortgage insurance were significantly less likely to default during and after the housing crisis than uninsured low down payment loans with a "piggyback" second mortgage.
The Promontory study, of nearly 5.7 million mortgages originated between 2003 and 2007, found that the cumulative default rate over six years for uninsured low down payment loans with piggyback second mortgages was nearly 21 percent greater than for comparable loans with mortgage insurance. First mortgages with a simultaneous (or "piggyback") second mortgage were the most prevalent alternative to the use of mortgage insurance over the past decade.
Genworth requested the study to address the question - raised by federal regulators responsible for defining the Qualified Residential Mortgage (QRM) as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 - of whether mortgage insurance contributes to a lower frequency of mortgage default. Promontory maintained full control over the research and conclusions in developing and conducting the study for Genworth.
"The Promontory study shows that mortgage insurance reduces the frequency of mortgage default, without exposing investors or the broader housing market to undue risk," said James R. Bennison, CFA, senior vice president, U.S. Mortgage Insurance Strategy and Capital Markets. "Regulators should include loans with private mortgage insurance as an acceptable exemption to risk retention requirements under QRM, so this reliable private sector source of capital can continue to support the nation's housing recovery through responsible lending to creditworthy borrowers."
Promontory's analysis simultaneously controlled for a variety of borrower and economic characteristics that might affect default rates, including loan type, unemployment levels, interest rates, and home price and equity fluctuations. The study reviewed third-party data from the CoreLogic Servicing database.
"Our analysis supports the assertion that, historically, loans with mortgage insurance have been associated with lower rates of delinquency or default when compared to non-insured first mortgage loans with a piggyback second mortgage," said Eugene A. Ludwig, founder and CEO of Promontory, a global financial services consulting firm.
Other factors the study took into account included borrower's credit scores, combined loan-to-value ratio, loan purpose, and documentation level. Using the rigorous analytical method known as survival analysis, the study showed that, for each variable, low down payment loans with mortgage insurance had significantly lower delinquency rates than uninsured piggyback loans.
For purposes of the study, "low down payment loans" were defined as those with combined loan-to-value ratios of more than 80 percent, and "insured mortgages" referred to loans with either private mortgage insurance or federal forms of mortgage insurance, such as loans backed by the Federal Housing Administration.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a leading Fortune 500 insurance holding company dedicated to helping people secure their financial lives, families and futures. Genworth has leadership positions in offerings that assist consumers in protecting themselves, investing for the future and planning for retirement -- including life insurance, long term care insurance, financial protection coverages, and independent advisor-based wealth management -- and mortgage insurance that helps consumers achieve home ownership while assisting lenders in managing their risk and capital.
Genworth has approximately 6,500 employees and operates through three segments: Retirement and Protection, U.S. Mortgage Insurance and International. Its products and services are offered through financial intermediaries, advisors, independent distributors and sales specialists. Genworth Financial, which traces its roots back to 1871, became a public company in 2004 and is headquartered in Richmond, Virginia. For more information, visit Genworth.com. From time to time, Genworth releases important information via postings on its corporate website. Accordingly, investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information is found under the 'Investors' section of Genworth.com.
SOURCE: Genworth Financial, Inc.