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MGIC Updates Underwriting Requirements

Changes to guidelines for condos, ARMs and refis

Jan. 10, 2012

By MortgageDaily.com staff


Changes to MGIC's underwriting guidelines impact adjustable-rate mortgages, condominiums and refinances. The mortgage insurance company also revised its requirements for co-borrowers who use non-traditional credit.

MGIC is reducing the maximum first adjustment cap on two-year ARMs to 2 percent from 3 percent.

Borrowers on ARMs with fixed initial terms of five years will now be qualified at the note rate plus 2 percent, while ARMs with fixed initial terms in excess of five years will be qualified at the note rate.

MGIC said the revisions were an attempt to align its own requirements with industry standards.

The updates were spelled out in MGIC Bulletin #01-2012.

The Milwaukee-based company said that when a primary borrower qualifies without using the income or assets of a co-borrower, then the co-borrower doesn't need to meet MGIC's minimum tradeline or nontraditional credit documentation requirements. The primary borrower's indicator score will be used as the loan indicator score, and an MGIC manual underwrite is not required.

Primary borrowers are those who will occupy the property and contribute more than half of the qualifying income.

But when the co-borrower's assets or income are needed to qualify, and the co-borrower has a credit score -- then the co-borrower is not required to meet MGIC's minimum tradeline or nontraditional credit documentation requirements. In addition, the co-borrower's credit score will be used to determine a borrower indicator score, and the loan indicator score will be based on the lowest borrower indicator score.

However, when no credit score exists for the co-borrower, then there is no loan indicator score and the loan is subject to MGIC's traditional underwriting requirements and premiums. In this case, an MGIC manual underwrite is required.

On mortgages secured by condominiums that are part of a project with less than four units, construction of the project or phase needs to be complete. Conversion projects must have completed common elements and renovation work for all units, and all project facilities must be owned by the homeowners' association or property owners.

In addition, at least one owner-occupied unit -- in addition to the subject property -- must have been sold and conveyed to the buyer, and no investors can own any of the units. MGIC also requires that no single entity own more than one unit in the project, none of the space in the development be used for commercial purposes and condominium documents be enforceable against unit owners by binding arbitration.

MGIC said it will only finance one unit when the development is less than four units, and all loans must be manually underwritten.

Refi-to-Mod loan requirements on loans that aren't being refinanced under the Home Affordable Refinance Program are limited to loans that were insured by MGIC before June 2009. A loan can be modified only one time under MGIC's Refi-to-Mod Program, and the maximum non-HARP loan-to-value ratio for new insured-servicer transactions is 125 percent.

The changes affect mortgage insurance applications received after Jan. 15.

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