Despite 19.1 percent fewer home sales in September than a year ago, private mortgage insurance applications received by leading mortgage insurers are up 32 percent in the past 12 months.
During the first quarter when the federal tax credit stimulated sales, mortgage insurance applications rose steadily. Buyers who could not come up with 20 percent for a down payment sought to take advantage of the tax credit and record low interest rates by taking out mortgage insurance policies. From a low of 19,438 applications in January, members of the Mortgage Insurance Companies of America wrote insurance for 39,846 purchase loans in September. The dollar volume for insurance written on newly originated conventional mortgage loans was $7,008 million in September, a 45 percent increase over a year ago.
Mortgage insurance applications have not dropped in July and August like home sales or purchase mortgage applications, suggesting that mortgage insurance is gaining market share rapidly during the downturn in sales…and more and more buyers are finding they have to turn to mortgage insurance in order to secure a loan.
Private mortgage insurance protects the lender from default. It’s a fixed fee monthly payment that can be deducted from federal taxes. Many qualified borrowers need as little as five percent down to secure a loan with private mortgage insurance. Some 90 percent of buyers who take out a mortgage insurance policy in order to qualify for a loan cancel it within five years when they have built 20 percent or more equity in their homes, according to the Mortgage Insurance Companies of America.
Some private mortgage insurers are taking advantage of the boom to make their products attractive to even more home buyers Effective October 8, PMI, the largest insurer, raised its maximum loan to value ratio to 97 percent Borrowers need a minimum credit score of 720, and must live in only non-distressed markets and have conforming loan amounts to qualify. CMG Mortgage Insurance Company raised its maximum LTV to 95 percent with a minimum 680 loan representative credit score.