While no data is publicly available, we believe that piggyback loans have been a significant percentage of mortgage originations in which borrowers make down payments of less than 20% although their use has declined in 2007. We also believe that their use is primarily by borrowers with higher credit scores. We have a program designed to recapture business lost to these mortgage insurance avoidance products. This program accounted for 10.0% of flow new insurance written in the first half of 2007 and 9.1% and 6.5% of flow new insurance written in 2006 and 2005, respectively.
Competition or changes in our relationships with our customers could
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reduce our revenues or increase our losses. ------------------------------------------
Competition for private mortgage insurance premiums occurs not only among private mortgage insurers but also with mortgage lenders through captive mortgage reinsurance transactions. In these transactions, a lender's affiliate reinsures a portion of the insurance written by a private mortgage insurer on mortgages originated or serviced by the lender. As discussed under "The mortgage insurance industry is subject to risk from private litigation and regulatory proceedings" below, we provided information to the New York Insurance Department and the Minnesota Department of Commerce about captive mortgage reinsurance arrangements. Other insurance departments or other officials, including attorneys general, may also seek information about or investigate captive mortgage reinsurance.
The level of competition within the private mortgage insurance industry has also increased as many large mortgage lenders have reduced the number of private mortgage insurers with whom they do business. At the same time, consolidation among mortgage lenders has increased the share of the mortgage lending market held by large lenders.
Our private mortgage insurance competitors include: -- PMI Mortgage Insurance Company, -- Genworth Mortgage Insurance Corporation, -- United Guaranty Residential Insurance Company, -- Radian Guaranty Inc., -- Republic Mortgage Insurance Company, -- Triad Guaranty Insurance Corporation, and -- CMG Mortgage Insurance Company. If interest rates decline, house prices appreciate or mortgage insurance ------------------------------------------------------------------------
cancellation requirements change, the length of time that our policies remain ----------------------------------------------------------------------------- in force could decline and result in declines in our revenue. ------------------------------------------------------------
In each year, most of our premiums are from insurance that has been written in prior years. As a result, the length of time insurance remains in force (which is also generally referred to as persistency) is an important determinant of revenues. The factors affecting the length of time our insurance remains in force include:
-- the level of current mortgage interest rates compared to the mortgage coupon rates on the insurance in force, which affects the vulnerability of the insurance in force to refinancings, and -- mortgage insurance cancellation policies of mortgage investors along with the rate of home price appreciation experienced by the homes underlying the mortgages in the insurance in force.
During the 1990s, our year-end persistency ranged from a high of 87.4% at December 31, 1990 to a low of 68.1% at December 31, 1998. At June 30, 2007 persistency was at 72.0%, compared to the record low of 44.9% at September 30, 2003. Over the past several years, refinancing has become easier to accomplish and less costly for many consumers. Hence, even in an interest rate environment favorable to persistency improvement, we do not expect persistency will approach its December 31, 1990 level.
If the volume of low down payment home mortgage originations declines, the
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amount of insurance that we write could decline which would reduce our ---------------------------------------------------------------------- revenues. ---------
The factors that affect the volume of low-down-payment mortgage originations include:
-- the level of home mortgage interest rates, -- the health of the domestic economy as well as conditions in regional and local economies, -- housing affordability, -- population trends, including the rate of household formation, -- the rate of home price appreciation, which in times of heavy refinancing can affect whether refinance loans have LTV ratios that require private mortgage insurance, and -- government housing policy encouraging loans to first-time homebuyers.