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» VISIT US ONLINE @ DSNEWS.COM COVER STORY COVER STORY PROFILE IN LEADERSHIP O ver the past several years, amid the drama of the housing crisis and the widespread recession that ensued, the government has played a leading role in the housing market. Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) dominated the market as the industry stood on shaky legs. premiums, and permissive FHA underwriting." While some in the administration and in the industry argue the FHA's expanded role was vital to keeping the mortgage market functioning during crisis years, most agree it's time for the FHA to move aside and let private capital thrive. Government Steps into the Limelight The crisis years shook the mortgage insurance market to its core. A few insurance players dropped off the stage to be forever written out of the script of housing finance. PMI Group, Inc., previously one of the nation's largest private mortgage insurers, filed for bankruptcy in November. Radian survived the crisis but continues to report losses—most recently a $33.2 million loss in the second quarter. However, a few insurers are entering the new season of the market with positive performances. The mortgage division at Genworth Financial, Inc., a Fortune 500 insurance holding company headquartered in Richmond, Virginia, reported profits in both the first and second quarters. Another top player in the mortgage insurance market, Milwaukee, Wisconsin-based Mortgage Guaranty Insurance Corporation (MGIC), reported $12 million in profits in the second quarter. "Based on the first half of 2013, we now project that U.S. [mortgage insurance] is on a path to be modestly profitable in 2013, and we expect that 2014 results should improve over 2013," said Thomas J. McInerney, president and CEO of Genworth, during the company's earnings call in July. "We expect seasonality in the U.S. mortgage insurance market in the remainder of 2013, which could cause the second half of the year to return to a marginal net loss profile." A Closer Look at Private Insurers POINT— COUNTERPOINT Prior to the housing crisis, the FHA held a minimal market share—just 4.5 percent in 2006. However, as the housing crisis played out, the FHA took on a larger role, rising to claim 23.6 percent of the market by 2009, according to the Government Accountability Office (GAO). "As FHA's market share grew, the economic value of FHA's insurance fund declined dramatically," the GAO stated in a March report. Last year, the FHA's capital reserve reached a negative value. Data cited at a congressional hearing in February revealed the FHA insured 56.4 percent of outstanding mortgage loans. The Veterans Administration insured 23.9 percent, and the private sector insured just 19.7 percent. "Several years into the economic recovery, the FHA market footprint is still enlarged relative to the historical norm, and the agency faces challenges managing risk," Phillip Swagel, a professor at the University of Maryland School of Public Policy who formerly served at the Treasury Department, said during a hearing before the House Committee on Banking, Housing, and Urban Affairs in February. The FHA "displaces private sector activity, while providing backing for some houses worth more than $700,000—a level at odds with its mission," Swagel said. This sentiment was echoed by Teresa Bryce Bazemore, president of Radian Guaranty, Inc., currently one of the largest private mortgage insurers, during the same hearing. While conceding the FHA does have a place in the market, Bazemore said, "FHA has overtaken the mortgage insurance market due to increased loan limits, inadequately priced FHA MARKET PULSE Widespread sentiment today reveals a growing impatience with the behemoth government housing agencies and calls for more private capital in their places. However, the question remains, will the government step back and let the private market take center stage, and if so, is the private market ready to take the lead role? REO Insurance Plays Supporting Role As private insurers struggled through the crisis, REO insurers increased in popularity. Banks found themselves with unwanted REOs on their books, leaving them with the added burden of maintaining and protecting these properties. Whether through vandalism or extreme weather, REOs are vulnerable 51

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