Of the publicly traded insurers, MGIC, Genworth and United Guaranty (part of AIG), reported positive income, with Radian still trying to break out of negative territory. Privately held Essent Guaranty, a newbie, is coming on strong, with $10 billion in new business through the first half, versus $3.6 billion in the year-earlier period, according to IMF.

“Delinquencies are down, and the companies have recapitalized,” said Bose George, an analyst at Keefe Bruyette Woods. “At the same time, FHA is reducing its role in the market, so this has given them significant growth opportunities. … The companies have reversed their position and are starting to show modest profitability.”

(Read more: Mortgage delinquencies take a sharp turn up)

The private insurers have also benefited from the government housing bailout—the refinance program for underwater borrowers as well as the Home Affordable Modification Program. Both help borrowers make their monthly payments and stay current on their loans, although HAMP has come under fire recently as a report from the Troubled Asset Relief Program’s inspector general found the program had a high re-default rate.

Article source: http://www.cnbc.com/id/100956144

Now, facing a $16 billion shortfall, the FHA has raised premiums and will raise them yet again next month. FHA loans are becoming increasingly expensive.

(Read More: Housing Jobs Jump, Where Are the Workers?)

Meanwhile, as the housing market improves, private mortgage insurers are starting to remove overlays on higher loan-to-value loans, meaning the percentage of the home value that is mortgaged. Low LTV’s and high credit scores were the rule recently for the private insurers, but that may now be loosening, making these loans cheaper than FHA.

“FHA is certainly becoming more expensive,” noted Craig Strent, CEO of Apex Home Loans in Bethesda, Maryland. “The increase in low down payments is reflective of first time buyers coming off the sidelines and entering the market. We’re going to see more of this trend in the next couple of years as the economy improves and renters start to once again see the benefit of buying over renting. FHA has become more expensive and the mortgage insurance companies are the beneficiary of that, which is really not a bad thing as it means the private market is insuring the lower down payments rather than the government.”

(Read More: Home Buyers Are Back, but Where Are the Houses?)

The stocks of mortgage insurers like MGIC and Radian spiked in the first months of this year, as home prices improved and FHA policy changes designed to shrink its share of the market were announced. There is currently a bipartisan effort in the U.S. Senate to reduce the FHA’s role, and in the House of Representatives a hearing is being held Wednesday looking at, “the competitive advantages the Federal Housing Administration has relative to private mortgage insurers and how those advantages contribute to the crowding out of private capital in housing finance,” according to the House Financial Services Committee release.

Despite the advantages, FHA’s share is already shrinking, as Fannie Mae’s is rising. In the first quarter of 2012, loans with between 3 and 10 percent down payment made up 15 percent of Fannie Mae’s business for home purchase loans (not refinances). In the second quarter it rose to 17 percent and in the third to 18 percent. Fannie Mae has not reported its fourth quarter yet, but that share is expected to rise again. While a credit thaw is part of it, as mortgage interest rates rise and fewer borrowers apply to refinance, lenders are simply looking for more business.

Article source: http://www.cnbc.com/id/100548913

Fannie Mae and Freddie Mac were put under government conservatorship in 2008, in the wake of the housing and mortgage crash. (Related Link: Fannie Freddie Takeover.)

“With today’s announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market,” said Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy in a press release.

Treasury officials announced they will now require the two to reduce their investment portfolios at a faster rate, 15 percent a year instead of the previous 10 percent.

The Treasury is also replacing the ten percent dividend payments the two make to Treasury on its preferred stock investments with a “quarterly sweep of every dollar of profit that each firm earns going forward.” Fannie Mae and Freddie Mac only became profitable again this year, the first time since the crash of the market.

“We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business,” writes Jaret Seiberg of Guggenheim Partners. “Absent Fannie and Freddie, we believe housing finance will become more expensive and less available.” (Related Link: US Home Builders Begin to See Credit Thaw.)

Seiberg also notes that this is a positive for private mortgage insurers because Fannie Mae and Freddie Mac require such insurance when a borrower puts down less than 20 percent in equity on a loan. Without Fannie and Freddie, the private insurers would lose a lot of business.

The announcement, however, does not really speak to the future of the GSEs, rather just rids them of a counterproductive debt repayment situation. With the former 10 percent dividend requirement, Fannie and Freddie, up until the past two quarters, were actually having to borrow more from the Treasury in order to pay the Treasury the dividend.

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