Key Factors Regarding Private Morgage Insurers

The Federal Housing Administration, which insures lenders for losses incurred should a borrower not make his payments as promised, is pulling in its horns in an effort to remain solvent in the face of a rising number of delinquencies and foreclosures. At the same time, though, some of the half a dozen private companies that provide lenders with similar protection against defaults are quietly reentering the market, a market they all but vacated when the housing sector tanked.

2 Companies who have adjusted their guidelines in an attempt to re-enter the market are Genworth Mortgage Insurance in Raleigh, NC and MGIC of Madison,WI.

Beginning this month, down payment requirements on FHA-insured loans have been increased. Although borrowers with credit scores of 580 or above will still be able to make the traditional 3.5% down payment, those with lower scores will need 10% down. In addition, the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The premium can be financed as part of the mortgage. But the change nevertheless adds $1,000 to what otherwise would be a $200,000 loan. The resurge of interest by private mortgage insurers signify their belief that the housing market has reached some semblance of stability.

Genworth has rewritten its underwriting guidelines so that it will now back 5% down payment loans to borrowers anywhere in the country. Previously, such mortgages were not available to borrowers in so-called "declining markets," which in Genworth's case were California, Arizona, Nevada, Michigan and Florida. MGIC, the nation's largest private mortgage insurer, also has tweaked its guidelines. The changes aren't broad, company representative Katie Monfre says, but they are meaningful. Among other things, it has removed some markets from its restricted list and reduced the minimum FICO score required for a loan with a 5% down payment to 660.

Another company, Radian Guaranty in Philadelphia went away from the declining-markets concept altogether "at least a year ago," says President Teresa Bryce. Instead, it now backs 95% loans anywhere as long as trusted lenders with low delinquency rates underwrite them.

Yes, the FHA requires as little as 3.5% down, but you now need a FICO score of 580 or better to qualify. But private insurers will go as low as 3% on so-called affordable housing loans offered through state housing finance agencies.

Here's how the two line up on a $200,000 mortgage at 5.5% with three down-payment scenarios based on Genworth's pricing model:At 5% down, the principal and interest on an FHA-insured loan of $190,000 would be $1,103 a month. Add in the $79 monthly charge for insurance, and the payout would be $1,182. Rolled into the loan amount as paid as part of your monthly payment, private insurance is $46 more.But with 10% down, the numbers favor PMI: $1,120 a month for an FHA loan, $1,115 for private insurance paid monthly and $1,043 a month when the coverage is paid at closing.At 15% down, the FHA payment is $1,474 versus $1,436 for private coverage paid monthly and $1,394 if paid all at once.Private mortgage insurers bring other benefits to the table, too. Through Genworth, for example, Flagstar Bank in Troy, Mich., is offering job loss protection at no extra cost to borrowers who were laid off involuntarily. The insurance will cover the borrower's house payment, including taxes and insurance, for up to $2,000 a month for six months.And Radian will advance up to $15,000 to lenders to be applied to troubled borrowers' accounts to facilitate a mortgage-retention workout plan and ultimately reinstate the loan. Better yet, the money does not have to be paid back.

Note:
These are excerpts from the original article written by Lew Sichelman, published in the Los Angeles Times on April 25, 2010.

http://articles.latimes.com/2010/apr/25/business/la-fi-0425-lew-20100425