NMI Holdings, Inc. (NMIH), a Delaware corporation incorporated in May 2011
provides private mortgage guaranty insurance (which we refer to as "mortgage
insurance" or "MI") through its wholly owned insurance subsidiaries.
Our primary insurance subsidiary, National Mortgage Insurance Corporation (NMIC),
is a qualified MI provider on loans purchased by the GSEs and is licensed in
all 50 states and D.C. to issue MI.
MI protects mortgage lenders from all or a portion of default-related losses
on residential mortgage loans made to home buyers who generally make down payments
of less than 20% of the home's purchase price. By protecting lenders and investors
from credit losses, we help facilitate the availability of mortgages to prospective,
primarily first-time, U.S. home buyers, thus promoting homeownership while protecting
lenders and investors against potential losses related to a borrower's default.
MI also facilitates the sale of these mortgage loans in the secondary mortgage
market, most of which are sold to the GSEs. We are one of seven companies in
the U.S. who offer MI. Our business strategy is to continue to gain market share
with our principal focus on writing insurance on high quality, low down payment
residential mortgages in the U.S.
The modern MI industry was established in the late 1950s to provide a private
market alternative to federal government insurance programs, principally the
FHA. The industry mitigates mortgage credit risk within the residential mortgage
lending system, supports increased levels of homeownership, offers liquidity
and process efficiencies for lenders and provides consumers with lower-cost
products and increased choice of mortgage and homeownership options. Residential
MI protects mortgage lenders and investors when borrowers default, by reducing
and, in some instances, eliminating the resulting credit loss to the insured
institution. By mitigating losses resulting from borrower defaults, mortgage
insurance supports the origination of "low down payment" mortgages,
which are mortgages to borrowers who make down payments of less than 20% of
the value of the homes. Mortgage insurance also may reduce the capital that
financial institutions are required to hold against insured loans and facilitates
the sale of low down payment mortgage loans in the secondary mortgage market,
primarily to the GSEs.
Mortgage origination, guaranty and securitization includes a range of private
and government sponsored participants. Private industry participants include
mortgage banks, mortgage brokers, commercial, regional and investment banks,
savings institutions, credit unions, REITs, mortgage insurers and other financial
institutions. Public participants include government agencies such as the FHA,
VA and Ginnie Mae, and the GSEs, Fannie Mae and Freddie Mac. The overall U.S.
residential mortgage market encompasses both primary and secondary markets.
The primary market consists of lenders that originate home loans to borrowers
and includes loans made in connection with home purchases, which are referred
to as purchase originations, and loans made to refinance existing mortgages,
which are referred to as refinancing originations. The secondary market includes
institutions that buy and sell mortgages in the form of whole loans or securitized
assets, such as mortgage-backed securities.
To obtain mortgage insurance on a loan in our non-delegated channel, a lender
submits an insurance application to us, along with documentation we require
to support loan qualification for mortgage insurance. Our underwriters review
the insurance application and all materials submitted to us and provide a decision
to the lender prior to the loan closing.
In addition to our non-delegated underwriter employees located at our corporate
headquarters and remotely across the country, we have entered into agreements
with third-party underwriting service providers (USPs) under which they underwrite
the mortgage insurance decision on certain loans for us, consistent with our
underwriting guidelines and subject to the terms of the outsourcing agreements.
Our USPs share in the daily underwriting of mortgage insurance applications
submitted to us, depending on the volume and with targeted assignments of particular
loans to particular USPs, to ensure timely response-times to lenders. These
USPs use AXIS, our insurance management system, and are trained to follow the
same process outlined above that our own employees follow when they render an
insurance decision. Any underwriting decisions requiring escalation or a second
review will be referred to management.
We have vendor management processes in place to manage the risk associated with
outsourcing a component of our underwriting functions. In collaboration with
the USP's management team, we monitor the USP's day-to-day underwriting of mortgage
insurance decisions. We also review the qualifications of the USP's underwriters
and provide system and guideline training to ensure the USP's underwriting philosophy
is consistent with ours. We perform regular quality control reviews of each
USP's performance, and our agreements with the USPs require them to give us
access to the results of their internal quality control reviews. Underwriters
with unacceptable performance will be carefully monitored with specific action
plans, and our agreements provide for their timely replacement with 30 days'
notice.
1.12%