ABA Banking Journal - August 2008 - (Page 34) COVER STORY PMI shifts drive strategy change Private mortgage insurance providers have been cutting back on what they will cover, and changing the landscape of the business in the process. In April, for instance, MGIC Investment Corp., Milwaukee, the nation’s leading private mortgage insurer, in the course of announcing a first-quarter loss of $34.4 million, detailed steps it was taking to reverse things. These included significantly changing underwriting guidelines and increasing prices. And Triad Guaranty Insurance Corp., another major player, announced plans in June to stop writing new business. Other firms have their share of troubles. “Nowadays,” says Ohio lender Howard Boyle, “if there is anything at all unusual in the package, private mortgage insurers don’t want it.” “They are eliminating a lot of programs, tightening up their guidelines, and raising their fees, because they are the ones out in front,” who take the first risks, notes EagleBank’s Stephen Greene. An issue of concern to some lenders is when private insurers determine that, for their company, a particular region, town, or zip code has become a “declining market.” Requirements may be more stringent. Some loan types may not be insured at all. “They’ve targeted us [Virginia] as a declining market, which is so not true,” says TowneBank Mortgage’s Jacqueline Amato. When a market has been tarred with that brush, the rules change. Amato explains that it hurts her operation, for instance, when a lender attempts to do a conventional mortgage with a higher loan-to-value ratio. In a “declining market,” the carriers set a different threshold. This, and other factors, has led to shifts by institutions towards governmentbacked mortgage programs. “The mortgage insurance companies are all struggling, and they have shut down the 100% credit offerings,” says United Bank Mortgage’s Cynthia Lowman. As a result, she says, for such loans, “we’ve had to be very creative, and we’ve turned to state programs.” Michigan offers a state rural development effort that will cover the 10% that private mortgage insurance formerly covered. With that guarantee in place, says Lowman, the company can sell the loans to Fannie and Freddie. New Englander Chris Dunn of South Shore Savings notes that pending changes in FHA limits will help the agency’s programs better fit the higher cost markets of his area. As a result, he says, his organization has cranked up FHA training. While lenders are grateful to have such places to bring credits that need help, taking that route takes a toll—literally. Extra processing adds costs. It’s a matter of the sheer volume of extra paperwork that a private deal doesn’t require. “We are doing a ton of government loans,” explains TowneBank Mortgage’s Amato. “But it takes four times as long to underwrite a government loan than a conventional loan.” BJ 34 AUGUST 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.mgic.com/ http://www.mgic.com/ http://www.triadguaranty.com http://www.moneygram.com http://www.ababj.com
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