1

The State of the Mortgage Insurance IndustryOverview of Underwriting and Pricing Changes

Prepared for: NCSHA’s 2008 Spring Training

Prepared by: Kyle Mrotek, FCAS, MAAA

May 19, 2008

2

Overview of Underwriting and Pricing Changes

Lower max LTV Higher min FICO Restricted markets

– Declining values• Property appraiser

– Property declared in declining market, long marketing period, etc• Tagged by automated underwriting system

– More stringent eligibility• Lower maximum LTV• Higher credit score• Higher borrower contribution of down-payment

– Geographies identified by MI (state, CBSA, county, zip code, etc)• Changing each month, vary by MI• AZ, CA, FL and NV• Other select states and CBSA’s

3

Illustration of restricted markets for MI X

Overview of Underwriting and Pricing Changes

4

Overview of Underwriting and Pricing Changes

Illustration of restricted markets for MI Y

5

Overview of Underwriting and Pricing ChangesMarket Based Estimate of Cumulative HPAVintage Year 2008 as of November 2010

Metro AreaLos Angeles Miami Las Vegas

Item Month-Year LXXR MIXR LVXRA Feb 2008* 215 219 177B May 2008** 208 213 171C Aug 2008** 195 201 159D Nov 2008** 174 185 140

E=Avg(A:D) Avg 2008 198 204 162

F Nov 2010 154 171 126

G=F/E-1 Cumulative HPA -22.2% -16.4% -22.0%

*Actual** Last Prices as of May 14, 2008

Source of items A thru D and F: CME Group

6

Overview of Underwriting and Pricing ChangesIllustration of Frequency of Foreclosure Versus Cumulative Home Price Appreciation

-35% -30% -25% -20% -15% -11% -6% -1% 4% 8% 13%

Cumulative Home Price Appreciation

Fre

qu

ency

of

Fo

recl

osu

re

FICO 620-LTV 95

FICO 660-LTV 90

FICO 700-LTV 85

7

Overview of Underwriting and Pricing Changes

Increased loan limit for GSE eligible loans in HUD designated high cost MSAs Down payment source-not available from down-payment assistance program Appraisal-must use certified/licensed appraiser Reserve requirements-must be verified and at least two months Full documentation I/O loans-must qualify at full PITI payment amount Home buyer education

– Approved counselor

– Prior to purchase

– Face to face

– Must be documented and verified in application

Ineligible– Limited documentation

– Manufactured housing

– Nontraditional credit w/ LTV >95%

– Cash-out Refi’s

– Potential Neg-Am

8

Overview of Underwriting and Pricing Changes

Simplified Example of the Effect of a Change In Underwriting

Distribution

Property Type Before After Risk Weight1

Single Family 85% 100% 1.002-4 Family 5% 0% 1.10Condo 10% 0% 1.50

Total 100% 100%

Indicated Risk Relativity 1.06 1.00

Indicated Change -5%

1 Moody's Approach to Rating Residential Mortgage Pass-Throughs