For the first time since 2010, the private mortgage insurance (PMI) company MGIC reported quarterly profits.

In the second quarter (Q2) of 2013, MGIC reported:

  • $196 million in mortgage claims costs; and
  • $12 million in profit.

Compare this to Q2 2012, when MGIC reported:

  • $551 million in mortgage claims costs; and
  • $274 million in losses.

first tuesday insight

This outcome seemed virtually impossible one year ago, when MGIC was still suffering under a seemingly unrelenting barrage of homeowner defaults. In February 2012, 75% of first tuesday journal readers polled thought MGIC was guaranteed to sink.

Related articles:

Are MGIC’s days to default numbered?

MGIC suffers another loss, twice-told tales

But two key changes in the mortgage market have impacted MGIC’s balance sheet since then:

  • homeowner defaults decreased — in California the rate was 53% lower in Q2 2013 than in Q2 2012; and
  • the Federal Housing Administration (FHA) raised their mortgage insurance premiums (MIP) and extended their MIP requirement through the life of the loan.

Considering today’s rising interest rates, the FHA’s increased MIP does little to ingratiate home buyers with their product. As the disparity in rates between MIP and PMI premiums grows, so does the number of homebuyers choosing PMI firms like MGIC rather than an FHA-insured loan.

MGIC and other PMI companies can raise a hallelujah — it looks like they may stick around after all and prosper with the private sector. Home buyers will reap the benefits of this unlikely survival through increased competition between PMI and FHA MIP rates.

When private insurance providers are left to compete and hash out their differences without government programs outbidding them, buyers needing purchase-assist mortgages win.

Related articles:

PMI cries tears of joy; FHA just cries

Re: “MGIC Leads Mortgage Insurer Rally on Return to Profit” from Bloomberg.