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The semi-permanent, extended overlap of the conventional and FHA markets has eliminated loan size as the default determinant of which market a loan is originated in and turned this choice into a loan-level decision. government-insured market segment much more frequently than is customary. FHA's higher loan limits erased the automatic segmentation that mortgage size previously provided to the low downpayment market. According to an actuarial risk assessment report, the current loan limits allow FHA to insure 95 percent of low downpayment mortgages. Historically, the previous loan limit structure only allowed the agency to insure between 60 and 70 percent of loans in the low down-payment market. With this flattening of the conventional and government-insured mortgage segments, the cost of the loan became more of a deciding factor for originators when weighing FHA versus private credit enhancement providers and assessing the appropriate market sector for their borrowers. "There was a segment of the market that the MIs [mortgage insurers] and Fannie and Freddie were in," Bazemore recalls about days gone by. "We might have been competing with the banks doing second mortgages, piggybacks, but we weren't competing with the government in that space." That all changed as the downturn cut a deeper swath through the ideal of American homeownership. "After mid-2008, we were competing with the government on every loan," Bazemore reiterated. The semi-permanent, extended overlap of the conventional and FHA markets has eliminated loan size as the default determinant of which market a loan is originated in and turned this choice into a loan-level decision. Enhancements and Guarantees Nowadays, loan officers serve a gatekeeper role with the two market segments ever more on equal footing in terms of loan size. Individual loan officers choose to originate a 74 loan conventionally and use private mortgage insurance for credit enhancement or to funnel it to the government segment and originate an FHA loan. The FHA has generally broader underwriting guidelines as a means to meet its mission of providing mortgage access to low to moderate-income borrowers and first-time homebuyers. Broader underwriting paired with the credit crunch of 2008 meant that an FHA loan origination was often much more likely to be approved for a borrower. In this period of plummeting home prices, FHA loans were often less expensive than conventional loans with private mortgage insurance, further swinging the market share to FHA. A loan officer may choose the FHA route simply because it offers the path of least resistance to successful, timely origination given current conditions. All loans with less than 20 percent down require a form of credit enhancement to be eligible for sale to the secondary market. Mortgage insurance provides this credit enhancement. The government guarantee is what distinguishes an FHA loan, while private mortgage insurance is added to conventional loans. The cost of mandatory mortgage insurance, whether private or government-backed, trickles down to the borrower. The mortgage insurance credit enhancement, however, removes a large barrier to homeownership for borrowers who can only make a small down payment. In addition, it provides liquidity to the market and dually benefits homeowners and secondary market investors by facilitating loan originations. While mortgage insurance is a key link to homeownership for many, this framework of housing finance interconnectivity is outside the individual borrower's immediate sphere of interest: the price of credit enhancement (mortgage insurance) and how this affects his or her monthly mortgage payments is the foremost concern to a loan applicant. The private mortgage insurance industry has recognized that the price of mortgage insurance has emerged as a new fulcrum of competition at the point of origination. All private mortgage insurers have decreased their pricing. The FHA has been clear that it supports a shift in housing finance back to the private sector, and the agency has increased its prices in an effort to foster such a movement. Opposing Forces The two conflicting price changes between the insurer camps have created "a lot of loans in the borrower paid space where it is now better for the borrower to get a loan that's insured by MI rather than FHA," notes Bazemore. "A lot of the areas where that's not the case, it's because the fees that Fannie and Freddie add on to the loan shift it back to FHA." Loan limits altered the plane of competition in the mortgage insurance industry by erasing much of the conventionalonly market space. Competition within the sector previously hinged on the strength of the provider. Product price was in the mix of deciding factors, but private insurers distinguished themselves by product and reserve strength. "In the past, we worked with the banks and usually their corporate headquarters, working with the capital markets area or the credit risk area with respect to MI. You were really selling your company against other MIs," says Bazemore. Now, with the decision of credit enhancement falling primarily to each institution's front-line loan officers for each individual loan, the focus is no longer on the strength of the MI provider or even whether the loan is underwritten to comply with agency and investor guidelines—and that's tiptoeing dangerously close to the willynilly, free-loving days of pre-bubble revelry. Bazemore says her organization is trying to confront the shift to loan-level competition and counter the shuffling of responsibility by educating loan officers. She explained, "When a loan officer is doing an application with a borrower, they are making that

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