Mortgage insurance, which fell out of favor during the days of 100 percent financing and combo loans, is making a comeback. Through November 2007, there had already been $48 billion more in mortgage insurance written nationally than in all of 2006 by members of the Mortgage Insurance Companies of America, a trade group representing several of the largest mortgage insurers. Jeff Lubar, a spokesman for the group, said it doesn't keep track of statistics for individual states.
But local lenders say they've seen a similar increase. "I've got to believe the (mortgage insurance) reps are seeing an increase in policies written," said Ben Barrett, a certified mortgage planner with HomeServices Lending. The main reason for the swing back to mortgage insurance, the lenders say, is the tightening of lending standards that has cut down on financing options for borrowers without the standard 20 percent down payment.
Guy Griffith, a loan officer at Lincoln Federal Savings Bank, said about nine out of every 10 mortgages he did in 2006 for buyers without 20 percent to put down were so-called "combo" loans, in which borrowers got a first mortgage for 80 percent of the cost of the home and then either a second mortgage or home equity loan for whatever portion of the other 20 percent they couldn't pay up front. "Now it's the other way around," said Griffith, who is on the board of directors for the Nebraska Mortgage Association.
Barrett agreed that tightening credit standards have put a clamp on combo loans, especially recently. "There have definitely been some limits put in place that we didn't have six months ago," he said. While tightening of credit has had a major effect on mortgage insurance, other forces have been in play as well. For instance, a recent change in federal tax law made mortgage insurance premiums tax deductible on mortgages issued after Jan. 1, 2007 for borrowers with annual adjusted incomes of $100,000 or less.
That has leveled the playing field with mortgage interest, which has long been tax deductible, and made mortgage insurance more desirable to borrowers. "Interestingly, I've had a few clients request mortgage insurance," Barrett said. Mortgage insurance companies, stung by a huge drop in business during the housing boom, also have gotten more creative in coming up with different products.
Luke Mitchell, a loan officer with Cornhusker Bank, said there are now many more choices than the traditional policy with an annual premium that was paid in monthly installments as part of a person's mortgage payment. For instance, he said, borrowers can pay a higher one-time up-front premium, which can save hundreds or even thousands in the long run. And there are even programs where lenders pay the insurance premium, although that requires the borrower to pay a slightly higher interest rate. "There's a number of different options available to the consumer today, whereas it used to be: 'you have to have it and here's how it works,'" Mitchell said.
The rise in mortgage insurance business may have come at just the right time for the industry. The combination of rising defaults and a lack of growth in new policies has put several of the largest insurers in dire straits. MGIC Investment Corp. and PMI Group Inc., the country's two largest mortgage insurers, have experienced stock declines of 75 percent and 85 percent, respectively, since June. And MGIC announced Wednesday it may have to pay out as much as $2 billion in claims this year, more than twice as much as it paid out in 2007.
Most industry analysts seem to think the insurers will weather the storm, but an influx of more stable loans can only help the situation. Lincoln Federal's Griffith said the return to the stability and safety of mortgage insurance is likely a long-term t
Source: JournalStar.com