A vital part of the housing industry but largely forgotten during this mayhem. Richard fills us in.
Mortgage insurance company losses are a mounting concern for the industry.A concern that has not received much coverage in the media, nor in Congress. These companies have taken a beating in the market downturn.
Mortgage insurance enables home buyer to purchase with less than a 20% down payment. For FHA loans, the home buyer purchases government mortgage insurance from HUD. For conventional loans, the home buyer purchases private mortgage insurance.
Several companies offer mortgage insurance. All have taken heavy losses and as a result have tightened their lending guidelines. In many cases the MI companies have tightened their guidelines more than Fannie Mae and Freddie Mac have.
In other words, Fannie or Freddie might allow a loan to be, if the borrower can obtain mortgage insurance. But if the mortgage insurance is not availabie, then the loan cannot be made. Even though Fannie and Freddie guidelines would have allowed it.
Mortgage insurance is critical to home affordability and to the housind market.
Mortgage insurance is in trouble.
Standard and Poor's is looking closely at the larger mortgage insurance companies. This look may mean a credit rating downgrade.
The impact - higher premiums, tighter guidelines, less approved loans. It may be that Congress needs to look into what can be done to support this industry that is so vital to the continued housing recovery.
In an earlier post I suggested a twist on the home buyer tax credit that might have provided a boost to the struggling mortgage insurance industry, and might have actually helped create new home buyers. Both of these issues remain unaddressed.