Your Credit Score will depend on if you get a home or if you Rent

by Michael Mapes, The Responsible Mortgage Lender.Com

Mortgage Insurance companies AIG/United Guaranty along with RMIC  have announced this morning that it will no longer insure certain loan types with credit scores under 660.  Citing first payment default as the reasoning behind such a move, the mortgage insurance industry has begun to not accept automatic underwriting model approvals from both Fannie Mae and Freddie Mac.

In recent years when a borrower applied for a loan, the loan officer would input this data into a loan application and electronically send it to Fannie Mae's DU/DO system or Freddie Mac's LP system.  These systems would use a statistical model to gauge the risk and with in a minute send back a underwriting approval or refer it to an underwriter for manual underwriting.  This feature has allowed numerous home buyers not only to purchase a home they otherwise would not have qualified for under traditional manual underwriting, but it has also allowed mortgage loans to be approved and closed in record speed.

Todays actions were as follows:

*  Loans with a credit score of 660 or lower and borrowing 97.01 - 100% loan to value will now have their mortgage insurance priced at A- mortgage insurance rates.  This represents a increase of over 50%

*  Loans with a credit score of 620 or less and borrowing 95.01% Loan to Value up to 100% will no longer be eligible for mortgage insurance.

*  Loans with a credit score of 575 or less will not be eligible for Mortgage Insurance regardless of Loan to Value.

*  These policies take effect and are in effect as of December 3, 2007 regardless of automatic underwriting finding

What does all this mean? and who is impacted?

These new enhancements or tightening is target at the FNMA My Community Program and Freddie Mac's Home Possible Solutions Program as well as FNMA and Freddie Mac's 97% program.  Without the issuance of mortgage insurance for borrowers using these programs, which lenders could previously sell to FNMA and Freddie Mac with credit score down to 575, this action will effectively end the program for anyone below a 620 credit score.  As well as those that are above the 620 credit score but below a 660 credit score will see the cost of a home mortgage rise about 20-25% what they would have normally paid.  Thus making qualifying for a home much harder for the low to moderate income borrower.

Typically the mortgage insurance industry and FNMA and Freddie Mac have marched in tune with each other, this move by the mortgage industry is sign that they no longer wish to dance.

Michael Mapes can be reached for comment at 757.599.1810 ext 225 or on the web at www.theresponsiblemortgagelender.com or at www.suntrustmortgage.com/mmapes