Thousands of borrowers in 22 states will no longer be able to obtain private mortgage insurance from MGIC Investment Corp. after March 3, when the company raises its minimum standards in 30 restricted markets.
The latest changes to MGIC’s underwriting standards follow warnings from company executives that they expect a $1.3 billion fourth-quarter loss on Feb. 13, and that MGIC will stay in the red in 2008 as it pays out up to $2 billion in claims (see Inman News story).
MGIC’s new list of restricted markets includes four entire states — California, Florida, Arizona and Nevada — and 26 markets in 18 other states where home prices are falling.
The restricted markets include Denver; Washington, D.C.; Atlanta; Honolulu; Chicago; Baltimore; Boston; Detroit; Minneapolis; Newark, N.J.; New York City; Portland, Ore.; and Vancouver, Wash.
In a regulatory filing, MGIC said the new underwriting standards will affect borrowers who have multiple risk factors such as a high loan-to-value ratio, a lower FICO score and limited documentation. The new underwriting standards are spelled out in a letter posted on the company’s Web site.
According to the letter, borrowers in restricted markets will have to make down payments of at least 5 percent to obtain mortgage insurance from MGIC, regardless of their credit scores. Only those with credit scores of 680 and above will be permitted to put less than 10 percent down.
In unrestricted markets, MGIC will insure only those loans with down payments of less than 5 percent when borrowers have credit scores of 680 or better. The same score will also be required for cash-out refinances in unrestricted markets, with maximum loan-to-value ratios of 90 percent.
MGIC will not insure any cash-out refinances of investment properties, regardless of the market, or loans with the potential for negative amortization, such as pay-option adjustable-rate mortgage (ARM) loans. Borrowers with credit scores below 620 will not be eligible for insurance from MGIC in any market.
In restricted markets, MGIC will no longer insure any reduced-documentation alt-A loans, investment property loans, or cash-out refinances.
In markets not on the restricted list, MGIC will insure only those alt-A loans with down payments of at least 10 percent, and borrowers must have credit scores of 660 or better. At least 50 percent of alt-A borrower’s qualifying income must come from self-employment.
Milwaukee-based MGIC and rival insurer PMI Group Inc. had previously raised rates for borrowers with lower credit scores and loan-to-value (LTVs) ratios above 95 percent, and discontinued mortgage insurance on loans with LTVs above 95 percent for borrowers with credit scores below 620 (see story).
Last month, Fannie Mae and Freddie Mac reinstated a policy that requires lenders to reduce maximum LTVs that apply to a particular loan product whenever a property is determined to be in a declining market, either by an appraiser or an automated loan underwriting program.
Analysts at Standard & Poor’s Ratings Services last month said mortgage and bond insurers are facing losses 20 percent greater than previously projected, because of revised assumptions about losses on subprime loans. The rating agency said it was considering downgrading its insurer financial strength ratings of several companies because of increased loss projections (see story).
After MGIC announced a $372.5 million third-quarter loss in October, Standard & Poor’s lowered the financial strength rating of its subsidiary, Mortgage Guaranty Insurance Corp., from “AA” to AA-. Fitch Ratings has placed MGIC’s AA rating under review, and Moody’s Investor Service is also reconsidering its Aa2 rating.
