Our Products and Services
Mortgage Insurance
In general, there are two principal types of private mortgage insurance, primary
and pool.
Primary Mortgage Insurance
Primary mortgage insurance provides protection on individual loans at specified
coverage percentages. Primary mortgage insurance is typically offered to customers
on individual loans at the time of origination on a flow (i.e., loan-by-loan)
basis, but can also be written in bulk transactions (in which each loan in a
portfolio of loans is insured in a single transaction). A substantial majority
of our policies are primary mortgage insurance.
Customers that purchase our primary mortgage insurance select a specific coverage
level for each insured loan. To be eligible for purchase by a GSE, a low down
payment loan must comply with the coverage percentages established by that GSE.
For loans not sold to the GSEs, the customer determines its desired coverage
percentage.
We file our premium rates with the insurance departments of the 50 states and
the District of Columbia as required. Premium rates cannot be changed after
the issuance of coverage and premiums applicable to an individual loan are based
on a broad spectrum of risk variables including coverage percentages, loan-to-value,
or LTV, loan and property attributes, and borrower risk characteristics.
Premium payments for primary mortgage insurance coverage are typically made
by the borrower. Mortgage insurance paid directly by the borrower is referred
to as borrower-paid mortgage insurance, or "BPMI." If the borrower
is not required to pay the premium, then the premium is paid by the lender,
who may recover the premium through an increase in the note rate on the mortgage
or higher origination fees. Loans for which premiums are paid by the lender
are referred to as lender-paid mortgage insurance, or "LPMI." In either
case, the payment of premium to us generally is the legal responsibility of
the insured.
Premiums are generally calculated as a percentage of the original principal
balance and may be paid as follows:
monthly, where premiums are collected on a monthly basis over the life of the
policy;
in a single payment, where the entire premium is paid upfront at the time the
mortgage loan is originated;
annually, where premiums are paid in advance for the subsequent 12 months;
or
on a "split" basis, where an initial premium is paid upfront along
with subsequent monthly payments.
In general, we may not terminate mortgage insurance coverage except in the event
there is non-payment of premiums or certain material violations of our mortgage
insurance policies. The insured may cancel mortgage insurance coverage at any
time at their option or upon mortgage repayment. GSE guidelines generally provide
that a borrower meeting certain conditions may require the mortgage servicer
to cancel mortgage insurance coverage upon the borrower's request when the principal
balance of the loan is 80% or less of the property's current value. The Homeowners
Protection Act of 1998, or HOPA, also requires the automatic termination of
BPMI on most loans when the LTV ratio, based upon the original property value
and amortized loan balance, reaches 78%, and provides for cancellation of BPMI
upon a borrower's request when the LTV ratio, based on the current value of
the property, reaches 80%, upon satisfaction of the conditions set forth in
HOPA. In addition, some states impose their own mortgage insurance notice and
cancellation requirements on mortgage loan servicers.
Pool Insurance
Pool insurance is typically used to provide additional credit enhancement for
certain secondary market and other mortgage transactions. Pool insurance generally
covers the excess of the loss on a defaulted mortgage loan that exceeds the
claim payment under the primary coverage, if such loan has primary coverage,
as well as the total loss on a defaulted mortgage loan that did not have primary
coverage. Pool insurance may have a stated aggregate loss limit for a pool of
loans and may also have a deductible under which no losses are paid by the insurer
until losses on the pool of loans exceed the deductible. In another variation,
generally referred to as modified pool insurance, policies are structured to
include an exposure limit for each individual loan as well as an aggregate loss
limit or a deductible for the entire pool.
Master Policy
We issue a master policy to each customer approved as a counterparty by our
risk department before accepting their applications for insurance. The master
policy, along with its related endorsements and certificates, sets forth the
general terms and conditions of our mortgage insurance coverage, including loan
eligibility requirements, coverage terms, policy administration, premium payment
obligations, exclusions or reductions in coverage, conditions precedent to payment
of a claim, claim payment requirements, subrogation and other matters attendant
to our coverage.
Mortgage insurance master policies generally protect mortgage insurers from
the risk of material misrepresentations and fraud in the origination of an insured
loan by establishing the right to rescind coverage in such event. Effective
for mortgage insurance applications received after October 10, 2014, the GSEs,
in coordination with the Federal Housing Finance Agency, or FHFA, have instituted
new minimum standards for mortgage insurer master policies. Under these new
minimum standards, master policies must provide rescission relief for loans
that remain current up to 36 months after origination and that have not experienced
more than two late payments of 30 days or more and have never been 60 days late,
and are permitted to provide rescission relief after 12 payments provided the
mortgage insurer can independently validate the representations for which it
intends to give rescission relief. The standards require that the master policies
reserve rescission rights with respect to fraud committed by the insured or
those under its control and certain patterns of fraud. Our master policy forms
satisfy these standards.
Contract Underwriting
In addition to offering mortgage insurance, we provide contract underwriting
services on a limited basis. As a part of these services, we assess whether
data provided by the customer relating to a mortgage application complies with
the customer's loan underwriting guidelines. These services are provided for
loans that require private mortgage insurance, as well as for loans that do
not require private mortgage insurance. Under the terms of our contract underwriting
agreements with customers and subject to contractual limitations on liability,
we agree to indemnify the customer against losses incurred in the event that
we make an underwriting error which materially restricts or impairs the saleability
of a loan, results in a material reduction in the value of a loan or results
in the customer being required to repurchase a loan. The indemnification may
be in the form of monetary or other remedies, subject to per loan and annual
limitations.
Bermuda-Based Insurance and Reinsurance
Essent Re provided insurance or reinsurance in connection with GSE risk-share
transactions covering approximately $156.3 million of risk on mortgage loans
in reference pools associated with ACIS and CIRT programs. Essent Re has also
reinsured 25% of Essent Guaranty, Inc.'s GSE-eligible mortgage insurance NIW
originated since July 1, 2014 under a quota share reinsurance agreement.