Insurers deal new blow to home buyers

Miami Herald--Mar. 22, 2008
BY MONICA HATCHER

First, it was mortgage lenders who began requiring bigger down payments from borrowers in South Florida, ostensibly making it harder to buy and slowing recovery of the housing sector. Now, mortgage insurers are delivering a new blow to a market that is already down.

Over the last several weeks, the nation’s mortgage insurers have been unrolling their own distressed market policies in Miami-Dade and Broward counties, eliminating certain loans from coverage and requiring higher credit scores and more upfront money from borrowers.

On March 1, PMI Mortgage Insurance, the country’s second-largest insurer, began requiring at least 10 percent down to insure loans for borrowers in most of Florida, even when lenders are willing to take smaller outlays. PMI said it designated distressed markets as areas in which it expects home prices to fall over the next two years.

The new insurance guidelines, which vary by company, come as South Florida’s housing market staggers under the weight of record foreclosures and unsold inventory. The median price of a single-family home in the region fell by an average of 14.5 percent in January, according to the most recent figures from the Florida Association of Realtors.

Typically, borrowers who put down less than 20 percent of a home’s sale price are required to carry mortgage insurance, which covers the lender in case of default. In the boom years, many lenders assumed the risk of default themselves by writing second mortgages to cover the difference in so-called piggy-back loans.

”When the interest rates were jammed down between 2001 and 2005, there was a general sense that there was no risk in the market, so lenders did 20 percent loans,” said Nate Purpura, a spokesman for PMI.

`DOWN-PAYMENT GAME’

Since the credit crunch, no-money-down arrangements have all but disappeared, forcing more borrowers to purchase the insurance much as they used to, said Mike Pappas, chief executive officer of The Keyes Company.

”Historically, real estate has been a down-payment game. We are going back to what we’ve grown up with,” Pappas said. The market, he added, had already adjusted to stricter lending standards and was on the mend anyway because of low interest rates, low prices, and recent changes to Florida’s Save Our Home amendment.

Others disagreed, saying the lending industry, including insurers, could be the biggest obstacle to getting the real estate market back on its feet because borrowers now may have to delay purchases to save up for down payments.

”People are in foreclosure and their houses are not selling because nobody can get loans to buy them,” said Alphoncia Lafrance, president of Midas Lending in North Miami.

To get loan insurance from MGIC Investment Corp., the country’s largest mortgage insurer, South Florida borrowers with a 620 credit score have to put down 10 percent on loans of $650,000 or less. For borrowers with better scores, the down payment drops to 5 percent.

So-called no-doc loans are disqualified, as well as pick-a-payment and negative amortization loans that were popularized during the boom. Those new guidelines mirror policies already in place by most lenders.

OBSTACLES

Justin Miller, president of JB Mortgage & Financial Services in Coral Springs, said the lending industry is throwing up obstacles for even the most qualified borrowers.

”They are overcompensating because of the subprime problem. It’s almost like going from Democrat to Republican, from Dennis Kucinich to Ron Paul — that’s how far it’s gone from the far left to the far right in terms of standards,” a frustrated Miller said. Like everyone else, insurers want to guard against future losses after being hit hard in mortgage meltdown.

LOSSES

Milwaukee-based MGIC reported a $1.47 billion-dollar loss in the last three months of 2007. On Monday, PMI Group of Walnut Creek, Calif., reported a fourth-quarter loss of $1 million. And the No. 3 insurer, Radian Group, booked losses of $721 million in the same period.

Still, Robert DeLoach, a securities attorney with Fort Lauderdale-based Ledbetter & Associates who closely follows the real estate market, said it’s unfair to make qualified borrowers pay for the excesses of the boom years.

”When I was in my 20s, I got a 95 percent loan. I paid it off. The mortgage insurers are picking on qualified borrowers, even when they have good credit scores, good payment histories and good jobs,” DeLoach said, “It will hurt us, and it’s too bad they singled out South Florida.”