MGIC Investment Corporation announced on February 7 that it will be tightening mortgage insurance qualifications starting March 3, 2008. MGIC (Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corp.) is the largest writer of private mortgage insurance for conventional mortgages. The change in underwriting standards comes as a direct result of an anticipated fourth quarter loss in 2007 of 2.3 billion dollars! Now that's a "lotta moolah"! The MGIC losses occurred because so many homes have gone into foreclosure and MGIC insures the lenders against just such losses. As my honey has told me many times. Insurance companies exist to make money NOT to pay out claims. In this case, MGIC has had to pay out too many claims and has lost a LOT of money!
MGIC has named 30 restricted markets across the nation to which the new guidelines will apply. Minneapolis (and St. Paul by implication) has drawn the unlucky straw and is on this restricted list. Other cities include Denver, Washington, D.C., Atlanta, Honolulu, Chicago, Baltimore, Boston, Detroit, Newark, NJ, New York City, Portland OR and Vancouver WA. Four whole states are included on the list as well: California, Florida, Arizona, and Nevada.
What does this mean for the St. Paul real estate market? The new guidelines will require at least 5 per cent down payment regardless of the applicant's credit scores, but if your credit score is below 680 10 per cent down payment will be required. More documentation will also be required of applicants for mortgage insurance.
From the buyers' perspective this may seem irrelevant since mortgage insurance generally is viewed as an expensive inconvenience. The problem lies in that most St. Paul lenders will not loan the money for a home purchase without mortgage insurance. It's one of those costs of closing that is paid by the buyers because the lender requires it. The bottom line. If you can't get private mortgage insurance in St. Paul and your lender requires private mortgage insurance, you can't buy the St. Paul house. If you're one of the ones denied PMI, your remedy is to save a larger down payment, increase your credit scores, and provide more documentation that you're not a poor credit risk!
Yep, prices are going down. Foreclosures are going up. Mortgage qualifications are tightening. Mortgage insurance standards are stiffening. It looks like we're returning to the ol' days where one needed a down payment and good credit and paper trails in order to get financing.
Tom, I think your shudder will become quaking in our boots!
Posted by: Bonnie Erickson | February 15, 2008 at 01:26 AM
Banks are so capital impaired that they can't lend. Prices will decline until the average price falls under the new FHA guidelines, an effort to save housing in an election year. It seems that FHA will become the lender of last resort.
If HUD gets these FHA houses back in mass, we will have huge amounts of government owned housing. I shudder to see what becomes of that mess.
Posted by: Thomas Johnson | February 13, 2008 at 08:28 PM
Glenn, I don't think there's an easy fix for the present problems of foreclosures and short sales. Even the things the government has currently instituted will only help a narrow segment of the foreclosure market and seems a bit "stop gap" to me. One of the things mentioned by MGIC was the loss of business due to the 80/20 mortgages which prevented the need for mortgage insurance.
Posted by: Bonnie Erickson | February 11, 2008 at 09:59 PM
Kind of surprised that MGIC has been hit so hard with losses - considering the alleged advantages of a second mortgage, HELOC, etc. over the past several years.
Seems like the lenders are going back to the "old mentality" of ability to payback (income), history of paying debts (credit scores), and enough security or equity (down payment and maybe closing costs).
Sound fairly reasonable - but will this solve the present problems of unsold foreclosures and short sales? Or is this common sense approach a little to late?
Posted by: Glenn | February 11, 2008 at 02:21 PM
Yes, Kristal, some buyers will not get a chance once the new guidelines are in place. You're in one of the restricted markets as well. I still have not clarified if St. Paul is not restricted. So often they lump us together as one city.
Posted by: Bonnie Erickson | February 11, 2008 at 09:42 AM
My broker advised us with homes under contract to see if we can move up the closings to beat the deadline. When mortgage qualifying requirements change, it could mean some people will get left out in the cold.
Your blog offers a good explanation as to why. Thanks Bonnie! Nice job, as usual.
kk
Posted by: Kristal Kraft | February 10, 2008 at 05:36 PM
Steve, I truly can't imagine why anyone would want assurance that the thousands of dollars they are giving to someone won't be pilfered away! (Straight sarcasm, for those who are wondering!)
Posted by: Bonnie Erickson | February 10, 2008 at 04:49 PM
Down payments and good credit needed to borrow hundreds of thousands of dollars? That's crazy talk!
Posted by: Stephen Gross | February 10, 2008 at 10:39 AM