Mortgage insurance rising for some borrowers

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

3/4/2016

If you are putting less than 20 percent down or you have less than 20 percent home equity, understanding the latest mortgage insurance trends can translate into a jackpot of payment savings.

Conventional mortgage buyers Fannie Mae and Freddie Mac in coordination with their regulator, the Federal Housing Finance Agency, recently came up with a new set of requirements for private mortgage insurance companies named Private Mortgage Insurance Eligibility Requirements, or PMIERS.

In a nutshell, Fan and Fred are now requiring more capital reserves for insurers that want their insurance policies to be acceptable to them.

Undercapitalized mortgage insurance companies didn’t have the money to pay on the large number of borrower defaults that turned into insurance claims during the meltdown days.

For example, major mortgage insurer PMI never survived under the avalanche of insurance claims presented by Fannie, Freddie and others.

Today, there are seven private mortgage insurance companies; MGIC, UGI, Arch, Essent, Genworth, National and Radian. And, of course we have FHA government mortgage insurance.

The lower your credit score, the higher your insurance premium will be.

Orange County mortgage insured loans can go up to $625,500 both for conventional and FHA loans.

The percentage of down payment also matters regardless of loan size. A bigger down payment means less risk for the insurance carrier. Ten percent down will have a lower insurance premium than 5 percent down, for example.

As a result of the capital reserve requirement changes, mortgage insurance pricing is swinging around. The latest trends look like you are benefiting with reduced premiums if you have higher FICO scores. But if you are in the lower rung, you will pay even more for your lower credit scores than in the past.

For example, both Radian and MGIC are changing their private mortgage insurance pricing the first week of April. Some others may have already changed their pricing charts.

With 5 percent down, monthly insurance premiums for a MGIC customer with a 640 credit score will be more than double the premiums for a customer with a score of 740 after rates change in April. Holy FICO!

Fan and Fred also have separate, standard, piling on, pricing punishment for lower FICO scores.

Is affordable access to credit a fallacy if you don’t have excellent credit?

Next week, I will explore affordable housing loans in conjunction with lower-priced private mortgage insurance policies. And, you will learn the finer points of FHA government insurance that can be more affordable than private mortgage insurance.

If you have questions or comments, please contact Jeff Lazerson by clicking here.