Sunday, December 14, 2008

Mortgage Insurers tighten underwriting again.

This James Lockhart quote made me want to review any new mortgage insurance guidelines:

“You will probably see in the next quarter the Fannie and Freddie lines going down and FHA coming up,” Lockhart said. “Fannie and Freddie are so dependent on mortgage insurers because they can only buy loans with 80 percent loan-to-value ratios and they aren’t able to do as much.”
“In some markets, the mortgage insurers have tighter standards than Fannie and Freddie,” Lockhart said. “So if someone wants more than an 80 percent loan-to-value, they have to go to FHA.”

A bit of an exaggeration but it is very true the mortgage insurers have tightened considerably in California.

The current guidelines can be summed up by the following criteria, for conforming limits 90% LTV and 720 FICO. For Conforming Jumbo 85% LTV and 720 FICO. There are minor variations on max Debt to Income (DTI) but most max out at 45%. One insurer (United Guaranty) won't insure a loan over the conforming amount in severely declining market. Which brings us to another common theme of the insurers, if they break out a state in declining severity California is considered in the worst classification.

The "Jumbo" conforming limit is dropping from $729k to $625k for Los Angeles County and down to $598k for Ventura County. In addition mortgage insurance on the mortgages between $417k and the jumbo conforming limit face either coming up with 15% down or going FHA with its expenses and restrictions (not all properties or borrowers qualify).

If you would like to take a look at the mortgage insurers guidelines they can be found here, here, here, here and here.

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