Private mortgage insurance (PMI) is fulfilling its role inprotecting lenders, but many loans hurting lenders today involvedtechniques that circumvented PMI requirements for home loans,insurers said.

Rick Gillespie, senior vice president, corporate communications,of mortgage insurer Radian, said, “The mortgage insurance industryis doing exactly what it was intended to do. Not withoutpaying.

“Obviously, the companies that comprise the mortgage insuranceindustry are experiencing the same housing and credit challenges aseveryone. But the claims have been paid. Each company is dealingwith it a little bit differently from a capitalization andliquidity standpoint.”

Mr. Gillespie noted that the government sponsored enterprise(GSE) charters mandated that mortgage insurance be used on loanswhere the down payment is less than 20 percent.

Currently, mortgage insurance is used on about 20 percent of allloans originated, he said, and it pays costs associated withdefaulted loans, including interest charges during the delinquencyperiod, home maintenance and legal fees.

Jeffrey Lubar, spokesman for the association Mortgage InsuranceCompanies of America (MICA), explained that mortgage insurancecovers a portion of a loan amount–typically 20-to-40 percentdepending on what an underwriter requires.

Both Mr. Gillespie and Mr. Lubar noted that many of the loanscoming back to haunt lenders today were designed to avoid PMI incases where the borrower could not afford a 20 percent downpayment.

These include “piggyback” loans, or 80-10-10 loans, whereborrowers pay 10 percent down and get a loan for 80 percent of thetotal price of the home. They then get a second loan for theremaining 10 percent.

“They were primarily intended as a workaround to mortgageinsurance, and it didn't work out all that well,” Mr. Gillespiesaid, noting that such loans are not really being writtenanymore.

“The short answer is that most of the loans that had troublewere not insured loans,” Mr. Lubar said. “They were part of those'piggyback' structures that people used to circumvent mortgageinsurance.”

Mr. Gillespie added, “Obviously the mortgage insurance companieshave paid increased claims over the past couple of years, but thoseare claims that haven't hit the rest of the industry.”

For the insured loans, Mr. Lubar said, “claims continue to bepaid as they come due when there are foreclosures.”

Mr. Gillespie said mortgage insurers have paid out about $15billion in claims over the last couple of years.

The current environment has led to some tighter times formortgage insurers and a hardening of the market. Mr. Gillespie saidthat, today, 95 percent of new loans written by Radian are prime,with a small amount then considered subprime. That was not the caseat Radian, or elsewhere in the industry, two years ago, hesaid.

He added that Radian has adequate claims paying capacity and hasalso recently announced a capital plan where the company hascontributed its financial guaranty business to its mortgageinsurance business.

The company has been able to transfer nearly $1 billion instatutory surplus and a total of $3 billion in claims payingresources. “When all is said and done, the pro forma risk tocapital ratio for Radian Guaranty, the mortgage insurance company,is 10.3 to 1–which is very attractive.” said Mr. Gillespie.

The company, he said, is looking at alternatives to make sure itnot only can pay claims but continue to write new business aswell.