Another roadblock has gone up for mortgage brokers: major private mortgage insurers recently announced they’ll either cut off insurance for loans from third-party originators, or will severely restrict conditions for them.
This means that as of March, mortgage brokers will have a harder time arranging for loans which require such insurance, i.e., loans where the borrower puts down less than 20 percent of a home’s value.
“We’re losing our ability to do higher loan-to-value loans with certain investors,” said Richard Shapiro of Natick-based lender/broker Asset Mortgage Group. Some insurers will still work with third-party originators, he said, but PMI is also getting more expensive, making it less tenable as an option.
The moves are not uniform across the industry: different insurers have made different decisions regarding third-party originated loans, said Denise Leonard, executive director of the Massachusetts Mortgage Association. But the bottom line is, these companies’ actions are going to drive away business from third-party originators of all stripes, including smaller banks and credit unions, she said.
Only a few insurers have made these announcements, but the industry is small – less than a dozen companies in the U.S. – and tends to follow a pack mentality; when a couple companies make an announcement, the rest tend to follow suit shortly thereafter, said Tom Taggart, a spokesman for PMI Group.
Taggart’s company recently announced it was completely cutting off third-party originators unless those mortgage brokers are correspondents with major banks.
It’s not that broker-originated loans are bad risks, Taggart said, it’s a question of capacity. With the housing and mortgage business as bad as it is, mortgage insurers have to scale back their businesses.
“We continue to write new business,” he said, “but we have to manage tightly during these market conditions. Everyone’s being prudent.”
Shapiro said private mortgage insurers have been paying out a much higher number of claims because of the spike in loan defaults and are undercapitalized.
The concern is that insurers are going to start slowing down their businesses and keep tweaking their requirements so eventually they’re only insuring people with 10-percent down and credit scores of 900, he said.
“I’m fearful in general that private mortgage insurance is going away,” Shapiro said.
For his part, Shapiro said more of his business is getting steered toward the Federal Housing Administration, which is becoming a better product for people who are putting down less than 20 percent of a home’s value, anyway. Loans through Fannie Mae and Freddie Mac, by contrast, are getting buried in new fees and expenses.
The mortgage insurance news isn’t pretty, but Shapiro said there’s no use dwelling on a closed-off avenue. Mortgage lending guidelines and developments have been changing so quickly, the only thing to do is concentrate on which loans are available.
“I’m on to the next step,” he said.
