Wednesday, August 27, 2008

Mortgage Insurance Rates on the Rise

Mortgage insurers are losing money and passing it on to homeownersPrivate Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.

With the growing number of mortgage defaults nationwide, mortgage insurers are finding their balance sheets under attack and their revenues in the red.

So far this year, mortgage insurers have paid out $6 billion in claims.

In response to the losses, the mortgage insurance industry is using two tactics to return to profitability -- and both mean bad news for homeowners.

  1. Raise the minimum standards to get insurance
  2. Raise the annual mortgage insurance cost

This is very similar to what Fannie Mae and Freddie Mac are doing to shore up their respective balance sheets; lending to only the most credit worthy, and making sure to charge them for their commensurate risk.

Because of the higher PMI rates, it's getting more expensive for small-downpayment home buyers to finance their homes. And that's if they can even still get mortgage insurance.

Some mortgage insurers now require a 10 percent minimum downpayment in certain states.

So with the number of mortgage defaults expected to rise through 2009, qualifying for PMI should get more expensive and more difficult. If you plan to make a small downpayment on your next home -- or plan to remortgage your current low equity home -- consider moving up your timeframe.

It may not be as cheap or as easy to get financing as it is today.

(Image courtesy: The Wall Street Journal)


Dustin Swigart said...

Not only are the rates higher but borrowers are being underwritten for the insurance just as they with the loan. Minimum credit scores requirements are much higher. It used to be if you received an LP or DU accept or approve/eligible, the insurance was automatic. Not so today. But the goods news is in the midst of all rate increases and risk-based pricing adjustments, FHA is now coming back full steam ahead. I originate many many FHA loans and now with pricing as it is FHA is the best option for someone with a score below 680 and 10% down. Depending on what term you choose, 30 or 15, it could still be a better option than conventional. 15 yr fixed FHA at 90% or below requires no monthly mortgage insurance. Lender-paid mortgage insurance programs are dwindling or becoming to pricey to consider. Everybody borrower is different and a full side by side analysis should be done to see what best fits the needs of the client.