Distressed Markets and private mortgage insurance
co-authored by my mortgage guy, Craig Bohall, Academy Mortgage
Have you ever wanted to know who decides what "distressed markets" are and what is not distressed? Well here is your chance to see a map.
Who is the "all knowing wizard" who determines that? Well for the most part it is the Mortgage Insurance (MI) companies. Fannie Mae and Freddie Mac also have their own lists. When a home gets sold at the trustee's sale, the Mortgage Insurance company likely had a policy on that home and, thus, they paid out on that policy. So imagine how many pay outs they have had in the last several years.
Guess how many they are planning on having the next few years? That's right -- their goal is "zero" mortgage insurance payouts! So in order to minimize risk and maximize profits they don't want to give mortgage insurance to loans that they feel might be risky for THEM.
What makes a loan risky you ask.... could be 1.) an investor loan rather than an owner occupied loan, 2.) a manufactured home rather than a "stick-built" one, 3.) a second home, 4.) any higher "loan to value" loans and, 5) a loan in a HIGH foreclosure area. Regarding the latter, they decided they would determine which areas had more losses and call those areas high risk or "distressed markets." Other factors go into it like % of price deterioration and % of REO's to resales and such, but all in all - distressed markets - is pretty self explanatory.
The good news is when you click on this map it is not one solid color - YES, it was at one time. People used to ask me what areas are distressed and I basically said "South of Canada and North of Mexico!
Now click on this Map of distressed markets in the US to see what areas they have deemed to be distressed. If you are buying in those areas then having mortgage insurance is going to be less available - or in other words - there will be a much bigger list of loans for which they DON"T want to give mortgage insurance.
To see that list of loans not eligible for Mortgage insurance click here. The interesting thing about this list (at the top of the page) is that a few years ago all, or most, of those items COULD have mortgage insurance. So now you can see what they consider to be risky. Basically everything except 20% down!
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