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MORTGAGE INSURANCE COMPANIES TO BORROWERS: No Mortgage Insurance in 9,600 Zip Codes!


All around the country, in places where property values were escalating through the roof as recently as 18 months ago, the ability for modest-income, average-credit, low-down-payment borrowers to finance a new home is headed off the map. 

One key reason:  many of the largest Mortgage Insurers in the U.S. now keep a "Watch List" of approximately 9,600 Zip Codes across the country.  In these zips, the mortgage insurers will not issue Mortgage Insurance to many types of borrowers - including non-live-in investors, those taking adjustable rate loans, and many low down payment borrowers - those with 5% down or less. 

The entire Phoenix AZ Metro Market is on the list, as well as Las Vegas NV, most metro areas in Florida, and many in California, Michigan, and Ohio.  In these markets, foreclosure rates have skyrocketed, property values have declined considerably, and lenders are losing millions of dollars on defaulting mortgage loans.  If you're seeking a refinance loan or looking to buy a new home or investment property in the affected markets, you will find a higher required equity level or initial down payment, and tougher credit requirements.

Click here for the entire "Declining Markets" zip code list, from Mortgage Insurer AIG United Guarantee.  You can also reveiw their updated Underwriting Standards for Mortgage Insurance, effective March 10, 2008,  in a separate PDF document.

"We're in the midst of an epic, broad, sweeping change in the mortgage industry," said Chris Sipe, of America East Mortgage in Frederick, Maryland.  The tightened lending guidelines, and Mortgage Insurance requirements, come as winter weather turns to spring warmth in many areas of the country.  Traditionally robust early spring sales have been dampened - even in Chicago, which has no affected Zip Codes on the M.I. Watch List.

All this comes despite steady cuts in interest rates from the Federal Reserve Board - the latest: a 0.75% drop in the Fed Funds Rate earlier this week.  Indeed, these rate cuts do help some borrowers facing adjustable rate loan resets, but the effect on new mortgage loans is muted.  Despite this, average 30-year fixed mortgage rates did dip, on average, below 6 percent this past week.

Where sub-prime lenders used to control the market for borrowers with less-than-perfect credit, more than 90% of such loans have disappeared since last summer.  Those with blemished credit or low down payment now turn to FHA-insured loans, or state or local assistance programs.  Several programs administered here by the City of Chicago and the Illinois Housing Development Authority provide loans to certain lower-income or first-time home owners.

While mortgage insurers toughen up for low-down-payment borrowers, some major lenders are separately increasing their down payment requirements in what they consider to be "declining markets."   National lender Wells Fargo now requires a minimum 25% down in some declining market areas. 

Relative to re-financing,  Wells Fargo, and several other lenders, are refusing to subordinate their smaller second mortgages.  They fear these loans will not be paid in the event of default or foreclosure, especially in areas of declining value or stagnating home appreciation.

President Bush's Economic Stimulus Package, which, among other actions, increases the loan threshold for conventional, non-jumbo mortgages, may provide relief in certain metro areas.  But most experts agree the home loan market will continue to be tight for months to come, further cooling the chances for a fast recovery in the housing market, in Chicago and across the U.S.

See Alan Zibel and J.W. Elphinstone's article in today's Chicago Tribune for more information, and some relevant comments and experiences by several borrowers caught up in the mortgage turmoil.


Posted: Friday, March 21, 2008 9:54 PM by Dean's Team


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