Insurance rule changes shouldn’t have bad impact

Florida Today--Mar. 26, 2008

BY JOHN McCARTHY
and KIMBERLY C. MOORE

The news last week that companies that insure mortgages were tightening their regulations in Brevard County left some wondering whether they would still be able to get mortgages to buy a new home.

Rest easy, local lenders say. At least, if you are buying a primary residence and have even a very modest down payment.

“Low down payment, privately insured mortgages are available in all areas of the country,” said Jeff Lubar, spokesman for industry trade group Mortgage Insurance Companies of America.

Last week, an Associated Press story that ran in FLORIDA TODAY indicated that mortgage insurers “blackmarked” large portions of the country, including Brevard County. That left some with the impression that some insurers were no longer offering services here and that homebuyers would need to come up with 20 percent down payments in order to buy a home.

Neither is true, though private mortgage insurance is no longer available here for the riskiest types of mortgages.

At the heart of the matter are rising foreclosures and declining home prices in Brevard and other parts of the country and huge losses by companies that issue private mortgage insurance, commonly called PMI in the mortgage business.

PMI protects the lenders if a borrower defaults on a loan. It is required for many loans where the borrower has less than a 20 percent down payment.

About a quarter of all home loans in Brevard County made between 2002 and 2006 required private mortgage insurance, according to the Federal Financial Institutions Examination Council.

The private mortgage industry is reeling from record foreclosures in some parts of the country. Industry giant MGIC, for instance, lost nearly $1.5 billion in the fourth quarter of 2007. PMI Mortgage Insurance Co. lost $236 million during the same period.

Much of those losses came as a result of the plunging housing market in certain parts of the country, notably in Florida and California, where home prices soared early in the decade only to plunge during the past two years.

Private mortgage insurers have responded with stricter guidelines in “distressed markets” such as Brevard.

In much of the country, for example, MGIC will issue a policy when the amount borrowed is 103 percent the value of the home.

In Brevard, though, it requires that the “loan-to-value ratio” be no more than 95 percent. It also requires a higher level of income verification here than in non-distressed markets and won’t insure “cash-out” refinancing deals.

“If you have somebody who wants a $700,000 loan with 103 percent loan-to-value and they have a (low credit) score and they don’t want to have full documentation of income, they can’t get that loan anymore,” MGIC spokeswoman Katie Monfre said.

But while loans such as that were being made — and insured — during the go-go days of the real estate boom, they weren’t typical for buyers of primary residences, even those with little money to put down toward a new home.

Casey Kilbourne, 24, and her fiance, James Echols, 26, recently walked through a house on Firestone Street in Palm Bay, hoping it might be their dream home.

“We’ve actually been looking for about six months,” Echols said, adding he doesn’t know whether they would be able to put down any money on the home they buy.

She is in school and working part-time as a Publix cashier and he works at the post office.

“It’s all going to be on the income I have — about $43,000 a year.”

But Echols is lucky. He and Kilbourne have qualified for a Federal Housing Administration loan. These loans come with the federally backed insurance eliminating the need for PMI.

And as a response to the housing crisis, FHA has eased its mortgage restrictions. The federal agency now insures loans in Brevard County up to $291,000. That’s compared with $214,000 earlier this year. “FHA upping the loan limits has really loosened things up, especially beachside,” said Dan Overstreet, president of Atlantic Mortgage Services in Satellite Beach.

Even local buyers who don’t qualify for FHA loans should be able to get private mortgage insurance, industry experts said. But they likely will have to put at least 5 percent down toward their home purchase.

“Gone are the days of the no-money-down home loans . . . Borrowers need to bring something to the closing other than a pen to sign the papers,” said Greg McBride, senior financial analyst for the Web site Bankrate.com.

That’s not a bad thing, added Stephanie Corns, spokeswoman for PMI Mortgage Insurance Co.

She pointed out that recently those with no equity in their homes have found themselves unable to refinance in the face of rising payments for adjustable rate mortgages.

Having equity in a home helps owners weather financial storms, such as a downturn in the market or a sudden job loss.

“If you have some equity, you have a much better chance of keeping your home.”