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The Rising Cost of Down Payments....

By
Mortgage and Lending with Envoy Mortgage

Private Mortgage Insurance (PMI) is a mortgage lender's insurance policy against highly-leveraged homeowners.  It's typically required when homeowner equity is less than 20 percent at the time of closing.

With PMI defaults up 40 percent over last year, private mortgage insurers are taking big losses.

They're also taking outsized steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The first PMI change new, higher insurance rates.

Like home insurers that adjust premiums after a worse-than-expected storm season, PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history.  The higher premiums are meant to offset the higher losses.

And, the second change is that some PMI firms are discontinuing coverage for "high-risk" transaction types.  This includes purchases of non-owner occupied properties, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today's homeowner. 

PMI rates are higher than they were six months ago and the rising number of defaults makes it likely that rates will rise again soon.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

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Lanette Branch
Taylor Properties - Bel Air, MD
Bel Air, MD Real Estate Agent

Rick, we had to know this was coming soon enough.

Oct 17, 2008 08:33 AM
Eric Egeland
RE/MAX SUBURBAN - Libertyville, IL
SFR, e-PRO, CDPE

Thanks for the info Rick,

Makes sense...not happy about it but it makes sense

Oct 17, 2008 08:40 AM
Barb Van Stensel
Chicago, IL

PMI doesn't fly with investment properties anymore unless it's FHA, if I am correct.  PMI has been abused and was there to protect and instead the people got out of control with their spending like the foxes chasing a rabbit.  We made homeownership too easy for those who couldn't be responsible and it punishes those who are growing up after those who have abused to take the beating. 

Oct 17, 2008 08:52 AM