Mortgage Insurers defy Fannie Mae and refuse to insure certain products

By Michael Mapes, The Responsible Mortgage Lender

Mortgage Insurance Agencies like MGIC, United Guaranty, Radian and others announced last week that they would no longer insure certain products issued by Fannie Mae and Freddie Mac.  This is direct response to mounting loses from early payment defaults.  Under the old rules if a borrower received an approval from FNMA (Fannie Mae) or FHLMC (Freddie Mac) automatic underwriting system, then mortgage insurance was approved as well based on those findings.  In reality the mortgage insurance agency's walked in lock step with the Quasi-Federal Agencies.  That is no longer the case.

In a recent announcement, mortgage insurers will no longer rubber stamp certain loan products for borrowers below 620 credit scores and loan to value above 95%.  For those borrowers who are above a 620 credit score but lower than 660 will find the cost of mortgage insurance 35-40% higher than they normally would have paid.  As well as mortgage insurers are raising the rates they charge on all loans across the board regardless of credit score or loan to value.

Mortgage Insurance provides no protection to a borrower.  It is paid for by the borrower as part of their housing payment.  When a borrower's down payment is less than 20% of the purchase price then mortgage insurance is required in order to obtain loan approval.  Mortgage Insurance pays for the foreclosure and protects the actual lender against steep financial losses when a loan goes bad.  Developed in the late 1960's mortgage insurance has allowed lenders to stretch guidelines and loan millions more too home owners since it creation.

As we continue to move through a rather challenging time in the housing industry there are alternatives to programs affected by this latest rule change.  FHA provides one such alternative solution.  The FHA reform bill is set to go to a vote in the Senate, soon home buyers will have the added protection of a safe secure fixed rate FHA loan with reasonable payments and terms.

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