Professional Home Staging and Photography Blog: Private mortgage insurance firms changing direction

Private mortgage insurance firms changing direction

House and dollar signPMI, or private mortgage insurance, played a large role in yesterday's real estate boom, allowing buyers acquire property without putting a penny down. That was a tempting prospect indeed. 100% financing actually became quite popular those days as values kept galloping up on a steady pace that quickly generated equity no borrower in his right mind would dare turn down. The standard rule required a PMI if the down payment was less than 20%. These insurers were making money hand over fist, like just about all the other housing market participants did.

The real estate market's collapse changed everything in a jiffy for PMIs. They began losing truckloads of money as insurance claim requests rolled in from besieged mortgage lenders. That's one thing. They also considerably tightened their guidelines and when that wasn't enough to turn the tide they partially or totally withdrew from many real estate markets where the destruction was the worst. The ones in the latter category were called declining markets, the more prominent of them being Arizona, California, Florida and Nevada, the fab four of housing euphoria. Things looked really bleak for the PMIs.

Now they are cautiously climbing out of somewhat of a hibernation. One of them, Radiant Guaranty, actually dropped the declining market label a while ago and now is insuring mortgages up to 95% LTV, or loan-to-value, as long as the originator is of stellar reputation with minimal delinquency ratios. Genworth has recently adjusted its underwriting rules to pretty much match those of Radiant. Not to fall too far behind the competition, MGIC - the top dog in the business - has removed some states from its restricted list and making other tweaks, like lowering the FICO score minimum to 660 for 95% home loans.

PMIs are softening their guidelines as the housing market appears to be settling down. The risk element of doing business is slowly fading. That's in stark contrast to what FHA is nowadays doing. Its mortgage underwriting guidelines are getting tougher on the heels of severe losses that some felt would soon require a taxpayer bailout. FHA used to be nearly the only game in town, but with the PMIs gradually rewriting their rules the playing field is leveling out. Cost wise, in many cases the two of them today are comparable. As the housing market continues slogging along the long and slow recovery road it's foreseeable that PMI will in time become a more attractive alternative.

Las Vegas mortgage borrowers will benefit

After the loud bubble bursting event Sin City quickly assumed the unofficial role of a flag bearer for the declining market troops when its own real estate sector did the unthinkable, and soon thereafter it turned largely into an FHA stronghold. It was tough to locate conventional mortgage money for anyone putting down less than 20%. Southern Nevada is nowadays experiencing some kind of a revival and PMI firms are reflecting that in their recent decisions. As a result Las Vegas home loan applicants will find more forgiving underwriting criteria to look at that will give the real estate market here a better chance to shake the lingering malaise off.  





Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 6 commentsEsko Kiuru • April 28 2010 05:22PM


Esko: Thanks for the update. I've seen PMI companies send out memo's with eased guidelines. It's still tough to get deals underwritten though. Take care.

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) almost 9 years ago

Esko the 41% maximum Total Debt To Income Ratio that most PMI Companies are sticking to is still a big draw back, especially since Fannie Mae allows a 45% Total Debt To Income Ratio.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago


Real estate markets are slowly stabilizing and PMIs are adjusting to that, which is great.

Posted by Esko Kiuru almost 9 years ago


It's not a walk in the park with PMIs yet, but we are heading toward the park. Looks like the comment function is working again.

Posted by Esko Kiuru almost 9 years ago

This is definitely good news to hear about a little softening in the mortgage markets.  Much better than hearing about more tightening!  I think you lenders have the worst roles out of all real estate professionals and hats off to you for staying in business and being on top of your game!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 9 years ago


These are small steps in the right direction and that's what the housing market desperately needs.

Posted by Esko Kiuru almost 9 years ago