Most Massachusetts community banks and credit unions haven’t made private mortgage insurance claims in years, but one of the state’s largest mortgage insurers is raising its rates and limiting the loans it will insure.
“Obviously, some of [the changes] are driven by loan performance and the losses we’ve seen,” said Katie Monfre, a spokeswoman for Mortgage Guaranty Insurance Corp., the Wisconsin-based insurer which carries about 25 percent of the national market.
The losses, it appears, come largely from “bulk” loans, or those insured after they were securitized – many of which were subprime loans. But lenders’ claims on loans to individuals have also risen.
On Aug. 4, MGIC raised rates on 95 percent loan-to-value (LTV) loans to approximately 1 percent of the balance due, paid annually.
Rates on 90 percent LTV loans have gone up to at least .62 percent, but vary based on whether the loan is for a purchase or refi-nance, a second home, or loans for more than $417,000, according to Jon Auger, senior vice president for retail lending at Middlesex Savings Bank. Like most banks and credit unions, as well as government loan backers Fannie Mae and Freddie Mac, Middlesex Savings requires all borrowers who put down less than 20 percent to obtain the insurance.
In June and July, responding to other types of perceived risk, MGIC increased its minimum required down payment on condominiums to 10 percent – up from zero – and raised the minimum credit score for loans made to borrowers wishing to build or renovate their homes to 700.
But it eased loan-to-value requirements on jumbo purchase and rate-term refinance loans made in restricted markets.
MGIC’s “restricted markets” generally coincided with Fannie Mae and Freddie Mac’s designated declining market regions, in which borrowers have to make increased down-payments in regions where real estate values are declining. But declining market restrictions were lifted in Massachusetts in the spring, after being in place for about three months.
The rate changes are “small,” said Monfre, adding that MGIC hasn’t raised them in at least a dozen years.
The insurer has paid more claims, nationally, every quarter since January 2007. In the first quarter of 2007, it paid $71 million claims on individual loans insured. A year later, in the first quarter of this year, the number had doubled to $141 million. And in the quarter ended in June, it paid out $149 million.
For bulk loans, claims paid rose from $166 million in the first quarter of 2007 to $385 million in the second quarter 2008.
Fuhgetaboutit
Barry Thomas, branch manager at the Burlington office of lender-broker Amerihome Mortgage, disagreed with Monfre’s characteriza-tion of the recent changes.
“Even if we still have a loan available, you can’t get mortgage insurance,” he said. “That’s a big problem.”
For example, he said if he could find a loan for someone with a credit score less than 620 (typically, considered the cutoff for a sub-prime loan), he wouldn’t be able to get it insured today.
In other words, since early 2008, “There is no MI under 620. End of story. Forget about it.”
Thomas said the cost of insuring a loan has also gone up significantly – by about three-10ths of a percentage point – since May. For example, he said, borrowers who used to have to pay .72 percent for a 5 percent-down loan now have to pay 1 percent.
Natick-based Middlesex Savings is requiring PMI more often than it has in the past, partly because it’s stopped offering alternatives such as 90 percent loan-to-value loans without insurance to qualified borrowers, Auger said.
“We haven’t had any problems with those, knock on wood,” he said. “But about two or three years ago we decided we had done enough.”
The bank keeps virtually all of its loans in portfolio these days and stopped non-PMI loans when it reached its comfort level at around the time the real estate market turned, he said.
Digital Federal Credit Union in Marlborough recently offered a six-month promotion of non-PMI loans, but stopped offering them in March after the promotion was more popular than expected.
“We were basically hoping to increase our mortgage volume, and that certainly helped,” spokesman Tim Garner said. “Then we found that it was still up and we didn’t need [the additional help].”
