The efficiency of residential mortgage guarantee insurance markets
Mortgage Guarantee Insurance (MGI) provides protection to lenders against default by borrowers who have less than 20 percent equity interest in the mortgaged property. The existence of this form of insurance helps to stimulate home ownership by allowing consumers with less than twenty percent down payment access to credit markets. Initially an invention of lenders, MGI became dominated by government agencies after the Great Depression but recently private insurers have increased their market share to more than 75 percent. The domination of the industry by the private sector appears not to affirm competition, however. Despite varying loss ratios across states, MGI premiums appear to remain relatively uniform, suggesting price inflexibility. This paper uses cross-sectional data on loss ratio, mortgage delinquency rates, and housing prices to test empirically the level of competition in the MGI industry. The paper finds that the level of competition in the industry is not sufficient to drive the premiums to the competitive (efficient) level. The implication is that national cross subsidies occur where high risk insureds are subsidized by low risk insureds.
|Date of creation:||1997|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:1997-013. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.