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Ten years ago, New York insurance executive Gerald Friedman shook up the municipal bond insurance business by starting an aggressive new monoline insurance company that challenged the dominance of traditional players in that market.
In two short years, Friedman's venture, New York-based Financial Guaranty Insurance Corporation, grabbed 30% of the market and stole major chunks of business away from its two largest competitors. By the end of the decade, FGIC had sold out to financial services giant General Electric Capital Corporation, with Friedman and GE living happily ever after--or so it seemed at the time.
Guess again. Jerry Friedman is once again stirring up the insurance industry, but this time he's set his sights on the mortgage insurance business, a multimillion-dollar industry dominated by a handful of companies, including Milwaukee-based Mortgage Guaranty Insurance Corporation and--you guessed it, General Electric. Ironically, Friedman also worked for MGIC more than 20 years ago when he started the first muni bond insurer, then an MGIC subsidiary.
This time around, Friedman has formed a mortgage insurance company called Amerin Guaranty Corporation and is going head to head with GE and MGIC, hoping to pull off the same kind of magic that he did with FGIC.
Is this deja vu all over again for Friedman? His financial backers, who have ponied up $200 million in capital to fund this latest undertaking, certainly hope so.
The product being promoted by the Chicago-based Amerin is called "lender-paid mortgage insurance" (LPMI) and has the potential to radically alter the mortgage business. If successful, Amerin could steal large chunks of business from GE, MGIC, United Guaranty Corporation of Greensboro, NC, and a handful of other MI companies that represent the core of the industry.
If not, then Amerin's investors will take a bath. As one industry observer puts it, "Jerry Friedman is a brilliant guy, which is exactly what it will take to make this product work. Either this is going to be a huge success--or someone is going to be out a lot of money."
As it works today, the mortgage insurance business is pretty straightforward: borrowers whose down payments amount to less than 20% of the mortgage must purchase an insurance policy that protects lenders against losses in the event the loan...