Mortgage Insurance
Our Mortgage Insurance segment provides credit-related insurance coverage, principally
through private mortgage insurance, to mortgage lending institutions nationwide.
Private mortgage insurance plays an important role in the U.S. housing finance
system by protecting mortgage lenders and investors by mitigating default-related
losses on residential mortgage loans. These loans are made to home buyers who
generally make down payments of less than 20% of the home’s purchase price.
Private mortgage insurance promotes affordable home ownership by facilitating
the sale of these loans in the secondary mortgage market, most of which are
sold to the GSEs.
We are a seller of mortgage credit protection and therefore, the demand for
our products and services is largely driven by the health of the housing and
mortgage finance markets. In addition to total mortgage origination volumes,
mortgage insurance industry volumes are impacted by the mix between mortgage
originations that are for purchased homes versus refinancings. Historically,
mortgage insurance penetration in the overall insurable mortgage market is meaningfully
higher for mortgage originations that are for purchased homes compared to refinancings.
Our businesses are also impacted by macroeconomic conditions and specific events
that impact the mortgage origination environment and the credit performance
of our underlying insured assets. The credit performance of loans originated
after 2008 is significantly better than that of the loans in our Legacy Portfolio,
as post-2008 loan originations have primarily consisted of prime loans with
excellent credit quality. Further, the improving macroeconomic environment has
contributed to the positive credit trends in our mortgage insurance portfolio,
including a decrease in the number of new defaults as well as improved cure
rates.
Mortgage and Real Estate Services (“Services”)
Our Services segment consists primarily of Clayton and provides services and
solutions to the real estate and mortgage finance industries, including outsourced
services, mortgage-related analytics and specialized consulting and surveillance
services for buyers and sellers of, and investors in, mortgage- and real estate-related
loans and securities as well as other ABS. Our Services segment provides information
and services that financial institutions, investors and government entities,
among others, use to evaluate, acquire, securitize, service and monitor loans
and ABS. The primary services offered are described further below and include:
loan review and due diligence; surveillance; valuation and component services
and REO management services; and services for the United Kingdom and European
mortgage markets offered through
Clayton’s EuroRisk operations.
Loan Review and Due Diligence. Our loan review and due diligence services include
loan-level due diligence for various asset classes and securitizations, with
a primary focus on the residential mortgage and non-GSE RMBS markets. We utilize
skilled professionals and proprietary technology to conduct these services,
with product offerings focused on credit underwriting, regulatory compliance
and collateral valuation. These services help our clients understand the risk
contained in a loan file, and provide them with information to help them price,
acquire, securitize or service the assets we review.
As part of our due diligence and review services, we offer credit underwriting
reviews and compliance reviews to verify that loan file documentation conforms
to specified guidelines and regulatory requirements. We leverage our underwriting
expertise to offer mortgage fraud review and re-verification, including identifying
breaches in representations and warranties made by sellers of the loans. In
addition, we offer data integrity services.
Surveillance. Our surveillance services utilize proprietary technology and skilled
professionals to provide ongoing, independent monitoring of mortgage servicer
and loan performance. We offer risk management and servicing oversight solutions,
including RMBS surveillance, regulatory and operational loan level oversight,
asset representation review, or ARR, services in connection with securitizations,
and consulting services. RMBS surveillance services monitor the servicers of
mortgage loans underlying outstanding RMBS. Regulatory and operational oversight
provides regular monitoring of servicing operations to measure and assess compliance
with applicable policies and regulations. Our ARR services provide targeted
loan and receivable oversight for ABS issuers and their investors in the event
of certain default triggers within the ABS. Our consulting services are focused
on regulatory compliance and operational reviews of both mortgage servicers
and loan originators.
Valuation and Component Services. Our valuation and component service offerings
are primarily focused on the single family rental, or SFR, market, and include
valuations, property inspections, title reviews, lease reviews and tax lien
reviews. We provide these services and due diligence reviews to issuers of SFR
securitizations as well as to lenders and investors in the single family rental
market. In addition, we provide valuation services, which primarily consist
of broker price opinions, to investors and servicers of non-performing mortgage
loans and REO properties, real estate brokerage services and technology solutions,
as well as appraisal, title and closing services through Clayton’s Red
Bell and ValuAmerica subsidiaries.
REO Management. Our REO management services provide management of the entire
REO disposition process, including management of the eviction and redemption
process, management of property preservation and repairs, property valuation,
title reviews and curative work, marketing, offer negotiation and closing services.
EuroRisk. Our EuroRisk operations provide outsourced mortgage services in the
United Kingdom and Europe, with offerings that include due diligence services,
quality control reviews, valuation reviews and consulting services. EuroRisk
provides services to mortgage originators and servicers, as well as to investors
in performing and non-performing mortgage loans. All of the EuroRisk services
revenue is generated in foreign countries, primarily the United Kingdom and
Greece.
Sales volume in our Services segment primarily depends on the overall activity
in the mortgage finance market and the health of related industries. We believe
the diversity of the services offered by our Services segment, which are intended
to cover all phases of the mortgage value chain, will help to support the demand
for services throughout various economic and mortgage finance environments.
For example, the demand for due diligence services may decrease in unfavorable
economic conditions due to lower mortgage origination and securitization volumes,
whereas the demand for REO management services may tend to increase in such
an environment. In addition, while the size of the mortgage finance market may
be adversely impacted by increased regulatory requirements, such as the recently
adopted CFPB mortgage servicing standards and the new regulatory requirements
for third-party review of loans in asset-backed securities, these requirements
may increase the demand for certain of our services, such as surveillance.