How Mortgage Insurance Can Help Accelerate the American Dream
In 2021, the private mortgage insurance (PMI) industry reported helping nearly two million low-down payment borrowers obtain mortgage financing, according to US Mortgage Insurers (USMI), an association representing the main PMI companies in the country.
According to the report, the MI industry has helped more than 37 million low-down payment borrowers in its 65-year history obtain mortgage financing, including nearly two million in 2021 alone. , according to data from Government Sponsored Enterprises (GSE) – Fannie Mae and Freddie Mac.
Texas, California, Florida, Illinois and Ohio ranked in the top five states for mortgage financing with private IM.
The table below shows the top five states where private IM was used by borrowers to buy or refinance homes in 2021:
Fannie Mae reports that private MI ranks among the lowest costs associated with homeownership, with total private MI payments representing 0.5% of lifetime homeownership costs for the average borrower.
“Soaring home prices, driven by record housing supply, have made home ownership unaffordable for many Americans. It is essential that affordable and sustainable low down payment mortgages are available to meet the needs of borrowers,” said Lindsey Johnson, President of USMI. “For 65 years, the private MI industry has helped level the playing field in home buying, providing first-time borrowers and low-to-moderate income borrowers with access to mortgage credit. Thanks to Private MI, nearly two million borrowers bought a home or refinanced in 2021.”
Key findings from the USMI report include:
- It could take 14 years on average for a household earning the national median income of $67,521 to save 20% (plus closing costs), for a single-family home of $353,400, the national median selling price.
- The wait time drops to just five years with an insured mortgage with a 5% down payment, a 64% shorter wait time nationally.
- Nearly 60% of purchase mortgages went to first-time buyers and more than 40% had annual incomes below $75,000. The average loan size purchased or refinanced from private MFIs was $310,275.
- MI’s private sector backed about $585 billion in mortgages in 2021, of which about 80% was for new purchases, while 20% was for refinanced loans, resulting in about $1.4 trillion outstanding mortgages with active private IM cover at the end of the year.
The number of years to save for a down payment has fallen from previous USMI reports, with the personal savings rate hitting record highs in the first six months of 2021, as reported by the Federal Reserve. . This was largely due to lower consumer spending, government stimulus measures and an increase in unemployment insurance.
According to a 2020 Congressional Research Service report, “The savings rate typically rises when there is a decline in general economic activity, but it can quickly fall back when there are positive signs of growth.”
The U.S. economy saw this growth with businesses reopening in the second half of 2021 once the pandemic began to recede. As a result, personal savings rates returned to steady levels as consumers began to spend more and save less, while the economy also experienced high inflation, limiting people’s ability to save.