Mortgage Insurance Underwriting Guidelines
Posted Fri, 2010-04-16 14:14 by Emily Caryl
This is the third post in a series of discussions about private mortgage insurance. If you'd like to catch up on what you missed, see The Ins and Outs of Mortgage Insurance and Mortgage Insurance Options and Costs. Today's post is primarily for loan officers, mortgage brokers, and other mortgage industry professionals. However, anyone interested in obtaining a home loan may also find the topic relevant.
Before we get started, here's a little something from the best dressed man in bluegrass. Please note, I'm not necessarily implying this is the action you'll need to take in order to obtain mortgage insurance.
Centennial Theater, Chattanooga, TN1
Now that we're all in the right frame of mind...
Qualifying for Mortgage Insurance
We mentioned qualifying for mortgage insurance in Cost Comparison: Low Down Payment Mortgages but we'll go more in depth here. Most borrowers are aware that every mortgage lender has qualifying guidelines for mortgage loans. Lenders require borrowers to meet certain down payment, credit score, and income requirements.
But conventional loans that require private mortgage insurance must also conform to a second set of guidelines. Those guidelines are established by the company that provides the mortgage insurance. Often, the standards established by MI providers are different than those established by the lender. For instance, a lender may be happy to provide a home loan to a borrower who has no cash reserves or savings. But nearly every mortgage insurance company requires borrowers to have at least two months of mortgage payments in reserve.
In addition, each of the six different companies that provide private mortgage insurance have different underwriting guidelines. For instance, one MI provider might provide mortgage insurance on a condominium with a 5% down payment while a different provider requires a 10% down payment on condos.
To complicate matters even further, most mortgage insurance providers maintain a "declining markets" list. If the company has determined that a particular county or metropolitan area is experiencing declining real estate values, their guidelines are more restrictive for properties in those areas. And each of the six MI companies have a different list of declining markets.
But before you pull your hair out, here's some good news. It appears that mortgage insurance companies are beginning to relax their underwriting guidelines and reduce or eliminate declining markets lists. Beginning 04/30/2010, United Guaranty will lower it's minimum credit score from 720 to 700 for Third Party Originations (TPOs). On 04/12/2010, Genworth began allowing cash out refinances, 2nd homes, and LTVs up to 95% for TPOs. Radian eliminated their declining markets list over a year ago. And Genworth now considers only five states to be in declining markets.
Underwriting Guidelines
If you're a borrower, how do you go about qualifying for private mortgage insurance? Remember, your mortgage lender will choose your MI provider for you. Your lender will also make sure you qualify for the chosen MI product and provider. Every lender doesn't work with every single mortgage insurance company. And, as we discussed in Mortgage Insurance Options and Costs, every lender doesn't offer every MI product at the same cost. Therefore, borrowers may wish to compare home loans from several different mortgage lenders. A mortgage broker can also assist borrowers in comparing options from several different lenders.
If you happen to be a mortgage broker or loan officer who originates home loans requiring private mortgage insurance, the following table is designed for you. This matrix compares current underwriting guidelines for each of the six mortgage insurance providers. The first two tables refer to TPOs and the second two tables refer to retail originations.
Standard disclaimer provided below. Click on the link to enlarge. And feel free to email Emily Caryl if you'd like a .pdf version of this document suitable for printing, framing, or gift giving.
04/26/2010 Newsflash! MGIC has announced changes to their underwriting guidelines. Beginning 05/01/2010, guidelines for third party originations are being enhanced to match retail originations. There will no longer be different guidelines for retail vs non retail. In addition, King, Pierce and Snohomish counties are being removed from MGIC's declining markets list. Sweet!
Standard Disclaimer
The guidelines above apply to non-restricted or stable markets. Properties located in declining markets generally have more strict requirements. In addition, the matrix applies to standard conventional loans. A-Minus, assumpings, modifications, affordable housing, and HARP/HAMP rograms were not considered.
Keep in mind that mortgage insurance underwriting guidelines can and do change. Every MI company above has announced changes in their policies in the last 30 days. In fact, as I wrote this post, I received a notice about changes to United Guaranty's declining market policy! When qualifying an applicant, please double check the accuracy of the information provided.
Declining Markets
Speaking of declining markets, I've also compiled a matrix of each MI company's declining markets. The table below shows which greater Puget Sound area counties are considered to be in declining markets by MI providers. Additional restrictions apply to properties located in distressed or declining markets (usually a reduction in LTV of 5-10% and an increase in credit score of 20-40 points). Again, if you're a borrower looking for a home loan for a property in a declining market, you'll want to shop carefully. And if you're a loan officer for a declining market property, hopefully the table below will assist you in selecting your lender and MI provider.
That's all I can possibly write about MI underwriting guidelines lest my fingers go numb and my brain explode! I may or may not have a last mortgage insurance post about canceling mortgage insurance. Honestly, the requirements for canceling MI are so complicated I'm not sure I even understand them myself! If you'd like to know more about mortgage insurance (or you fully understand the process for canceling MI), please contact Emily Caryl or post your comments below.
1. "Get Down on Your Knees and Pray," written by Bill Monroe, performed by Del McCoury Band, Centennial Theater, Chattanooga, TN, November 30, 1996.
