RALEIGH - Looking to further broaden its clientele beyond the top lenders, Genworth Financial Inc. plans to roll out a mortgage insurance product, similar to Federal Housing Administration coverage, for loans bought by state housing finance agencies.
In a tough environment for mortgage insurers, the Richmond, Va., company's U.S. mortgage insurance operation has "shifted in the last year to a more segmented marketing approach" that includes reaching out to state agencies, said Kevin Schneider, the president of the unit, which is based here.
The shift has "meant developing products and services aimed at specific segments" and moving away from spending "a lion's share of our time and headspace" on wooing just the biggest lenders, he said.
Serving national lenders is still a major focus, but Genworth is particularly "looking to grow faster in those segments where we are underpenetrated and see opportunities to achieve targeted returns," Mr. Schneider said.
Genworth kicked up its outreach to the quasi-governmental agencies - which use tax-exempt bonds to finance low-cost loans to low- and moderate-income borrowers - last year when it launched a line of policies that give borrowers the no-cost benefit of covering their mortgage payments in the event of a job loss.
MGIC Investment Corp. of Milwaukee has wooed the finance agencies with a similar payment-protection feature it launched last year. Seeing the demand for such payment protection from the agencies, American International Group Inc.'s United Guaranty Corp. is working on one, too.
Lewis Fain, the global marketing leader for Genworth's mortgage insurance business, said its product is a response to requests from the agencies over the past year for a conventional alternative to FHA.
Less than 5% of the new U.S. insurance his unit writes covers state finance agency loans, but that share has been growing quickly recently, and Genworth believes it is "reasonably positioned to about double" the amount of such insurance it writes over the next year or so, he said. "The mission we're trying to accomplish is to become the MI of choice" for the agencies, Mr. Fain said.
Mr. Schneider said Genworth wants to do more business with the agencies in part because of the widely held views about the growing emphasis on first-time homebuyers in the mortgage market in coming years as a result of demographics and other factors. Such borrowers, including the so-called emerging markets of minority and immigrant borrowers, who have lagged in homeownership, are a main focus for the agencies.
Mr. Fain said working with the agencies also provides opportunities to insure lending with high-touch and "responsible" underwriting and servicing practices, which produces generally low default rates.
Tony Lucente, the vice president for emerging markets at United Guaranty, agreed with both assessments about the appeal of the agencies. Because the agencies are offering low-cost loans, the quality of the loans "is typically as good or better than the rest of our book of business," he said in an interview at the unit's Greensboro, N.C., headquarters.
Many years ago housing finance agencies almost exclusively financed loans backed by FHA insurance and turned to private insurers mostly for pool insurance to credit-enhance bond deals. But most agencies now also accept primary insurance from private companies or associated insurance funds.
In recent interviews, officials from several of the agencies said they have been trying to provide alternatives to the types of increasingly popular adjustable-rate mortgage products whose potentially rising payment burdens is leading many market observers to predict a wave of trouble.
Genworth will announce its HomeOpeners SimplePlus policy today. The borrower-paid product has a split premium structure similar to the insurance provided by the FHA (which has itself been rapidly losing market share amid more aggressive private lending and bureaucratic processes).
As they would with FHA insurance, borrowers would pay Genworth an up-front premium of 150 basis points, which can be financed. Monthly premiums would vary according to the loan-to-value ratio, but they would be "almost always cheaper" than the 50 basis points the FHA charges, Mr. Fain said.
A spokesman for Genworth said the premium might exceed that amount when an investor requires an unusually high amount of protection on a loan with a very low down payment.
Also, borrowers would be able to finance closing costs, as they can with FHA insurance; however, unlike the FHA, Genworth would require borrowers to have FICO scores above 620.
Genworth, which General Electric Co. spun off last year, says it will reimburse borrowers up to $500 for an appraisal that proves they have built up the 20% equity necessary to cancel their policies. The product also includes the two years of unemployment payment protection that is standard for the HomeOpeners suite.
Mr. Fain said Genworth is considering making the product available to more traditional lenders.
Phil Cottone is the director of homeownership at the Georgia Department of Community Affairs. He said the state's Housing and Finance Authority, which the department runs, plans to offer Genworth's new product soon.
The policies' advantages include being cheaper, coming with the payment protection, not needing specially approved originators (often rare in rural areas), and being "faster and easier," Mr. Cottone said.
"Typically there's less paperwork to do" with a conventional loan than a government one, he said. FHA-insured loans still make up most of what his agency buys, and he expects that to continue to be the case, even if the new Genworth product contributes to a sharp recent slide in this percentage.
Mainly because of the growing use of "piggyback" home equity loans in place of down payments, mortgage insurers have struggled in recent years with decreasing insurance-in-force. To counter that trend, a number of insurers are expanding their product menus.
