The housing crisis threw plenty of monkey wrenches into the mortgage refinancing process; one was the lack of mortgage insurance (MI) for those homeowners with less than 20% equity. Today, the entry of new insurers into the market and the expansion of coverage by current insurers means that MI is more widely available.
By late 2007, mortgage lenders had pretty much stopped taking home loan applications from non-FHA borrowers who had less than 20% equity or down payment; even applicants with perfect credit could not obtain mortgage insurance in many markets. Today, home retention efforts like the Making Home Affordable program have cut foreclosures, given a major boost to insurers' stock prices and enticed the companies back into the market.
Mortgage Insurance Is Back
In this excerpt from a letter from mortgage insurer Genworth Financial to mortgage lenders, the firm stated its intention to loosen underwriting guidelines:
"As the mortgage market continues to stabilize, Genworth's strong reliance on prudent underwriting standards
and processes will allow us to continue expanding our underwriting guidelines. We are introducing new
definitions for Retail and Non-Retail Originations. These new definitions will allow us to broaden our
guidelines in all markets, including Arizona, California, Florida, Michigan, and Nevada."
The Change Affects Even the Hardest-Hit States
Notably, even markets in California, Arizona, Michigan, Nevada and Florida are no longer considered out-of-bounds. The increased availability of mortgage insurance should make it easier to buy or refinance property in these hard-hit markets. Here are the new rules:
- The policy for declining and distressed real estate markets (until recently, it has been impossible to get mortgage insurance in such locations) will be abolished.
- Condominiums are insurable to 95% loan-to-value (LTV).
- Co-ops are insurable to 95% LTV.
- Two-unit properties (duplexes) are insurable to 90% LTV.
- Manufactured housing is insurable to 85% LTV.
Credit Underwriting Has Been Relaxed
Other positive changes involve lower minimum credit scores. Instead of needing a 740 or 760 credit score to qualify for MI at Genworth, borrowers are now required to have these lower credit score thresholds:
- 680 for a 95% LTV loan on a primary residence (home purchase or rate-and-term mortgage refinance),
- 740 for a 90% LTV loan on a primary residence with a loan exceeding $417,000,
- 700 for a cash-out refinance of up to 85% LTV (many MI companies refused to insure cash-out refinances at all before now),
- 680 for a 95% LTV mortgage on a condominium (off-limits until now for many insurers),
- 680 for a 90% LTV mortgage on a duplex,
- 680 for an 85% LTV manufactured housing loan, and
- 720 for a purchase or rate-and-term mortgage refinance on a second home.
More Mortgage Insurers Mean Increased Availability and Competition
In addition to existing mortgage insurance companies Republic Mortgage Insurance Corporation (RMIC) and PMI Assurance Co. (PMAC), Freddie Mac approved Essent Guaranty to write mortgage insurance policies for their loans. According to Freddie Mac, this will result in increased availability of mortgage insurance for qualified borrowers with limited down payments or home equity.
Extra Benefits of Mortgage Insurance
Many mortgage insurers provide extra benefits to their clients. For instance, if you take eight hours of qualified classroom homebuyer education, you could get a discount on your insurance. Others offer job-loss protection at no extra charge; ask about this benefit when buying a new home or refinancing your mortgage. Mortgage insurers make a point of actively working with borrowers and lenders to find options for homeowners experiencing financial hardships. They can be excellent allies and when negotiating with your mortgage lender.
Acronyms to Know: MI, PMI, MPI and MIP
The abbreviations fly thick and fast when you start a mortgage refinance. MI stands for mortgage insurance. It's the standard term mortgage lenders use for non-government mortgage insurance. PMI stands for private mortgage insurance, but is also the name of one particular mortgage insurance company. MIP means mortgage insurance premium, which is FHA's mortgage insurance. MPI, or mortgage payment insurance, is altogether different -- it pays your mortgage payment in the event of illness, disability or unemployment. This insurance may be sold by lenders or insurance companies.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.