In a post boom world, mortgage lenders have been requiring more borrowers to get private mortgage insurance. During the boom, fewer lenders required insurance from borrowers who would traditionally have needed to purchase it, i.e. borrowers who couldn’t cough up a big enough down payment. During those days of more relaxed lending practices, a piggy back loan was a much more common way for borrowers to come up with a satisfactory down payment. But Piggy Back loans have largely gone the way of the dodo. Concurrently, the amount of mortgages that have PMI have more than doubled in the last year, in part because of the growing number of loans funded by Fannie and Freddie. Fannie and Freddie require PMI if the down payment on the mortgage is not great enough.

Fearing that the worst may be to come in the housing market in terms of foreclosures, Insurers are not eager to write policies that will leave them holding the bag in a withering market. To that end they are classifying ever widening areas in the U.S. as “a declining market”. Critics hold that this broad brush classifying is wreaking havoc on the ability of lenders to qualify loans for borrowers. Insurers maintain that the data that informs these classifications is not precise enough to allow for the exceptional neighborhoods within cities which continue to see growth and increasing real estate values.

What this means for the borrower, is another obstacle to new home ownership. They will be asked to come up with a larger down payment, and pay higher PMI premiums. For the Mortgage Banker, it is more critical than ever to find and qualify the right type of borrowers. The pendulum has swung the other way in terms of lenient lending practices becoming much more conservative.

Tags: Lead Management