Mortgage Insurers Eliminate Programs, Tighten Guidelines

MGIC, which is also known as Mortgage Guaranty Insurance Corp., said it will no longer insure cashout transactions, mortgages on second homes and loans on manufactured homes.

In its own bulletin, PMI Insurance Co. said it would not finance high-balance mortgages with temporary buydowns, high-balance loans with balloon payments or financing secured by manufactured homes. In addition, it will stop insuring two-unit properties, interest-only mortgages and loans with non-traditional credit.

The changes at PMI are effective Feb. 20.

Other changes to guidelines on high-balance loans at PMI include a minimum period of at least five years for the initial fixed rate on hybrid adjustable-rate mortgages. High-balance loans will be limited to 3 percent in contributions from interested parties.

On rate-and-term refinances, the maximum debt-to-income ratio has been limited to 38 percent at MGIC. In addition, proceeds cannot go toward subordinate liens — though re-subordination is allowed within its guidelines. MGIC said lenders are allowed, however, to stray from its guidelines on loans already insured by the Milwaukee-based firm by modifying the existing policy.

MGIC won’t insure construction-to-permanent loans until construction has been completed. But loans that have been appraised subject-to-completion are still eligible for 12-month commitments. Commitments cannot exceed 120 days on loans in the restricted states of Arizona, California, Florida and Nevada.

PMI has completely abandoned insuring construction-to-permanent loans.

PMI also abandoned third-party originated business.

MGIC, however, was less drastic in approach to third-party originations. It said third-party originations must be identified as such and include identifying information for the mortgage broker or loan correspondent. When lenders do not provide identifying third-party data, the LTV is limited to 90 percent and the minimum FICO score is 720.

Maximum loan-to-values on condominiums have been limited to 95 percent at MGIC. Condos in restricted states are capped at 90 percent LTV. PMI limited LTVs on all condominiums and cooperatives to 90 percent.

PMI said it will require a minimum credit score of 680 and a maximum debt-to-income ratio of 41 percent on all programs and products. Compensating factors on debt-to-income ratios will be disregarded. On high-balance loans, the minimum score will be 740.

Minimum FICO scores in restricted markets at MGIC are now 700, while minimum scores in restricted states are 720. The mortgage insurer added 25 new markets to its list of restricted markets.

PMI added Hawaii, Rhode Island and more than 50 markets to its distressed markets list and removed six markets.

The Walnut Creek, Calif.-based insurer will limit LTVs in those markets to 90 percent, except for condos and co-ops — which will be limited to 85 percent. PMI’s minimum credit scores in distressed markets will be 700 and 720 in the states of Arizona, Florida, Hawaii, Nevada and Rhode Island.

Other changes by PMI in restricted markets include a minimum five-year period for initial fixed rates on hybrid ARMs and a maximum of 3 percent in interested-party contributions. PMI is curtailing insurance altogether on attached housing located in Florida.

PMI added that reduced appraisal forms are now ineligible.

MGIC noted that new rates have been posted for its split premium plan. The new rates are tentatively effective on April 6, though state insurance regulators still need to sign off on the changes.