Yes, another impediment in the way of a quick Housing turnaround: Mortgage Insurance.
The insurance industry, with its actuarial standards and lack of securitization, seem downright crazy compared to mortgage brokers and bank lenders of just afew years ago. The folk who underwrite policies are actually concerned with defaults! (WTF?)
Here’s the Ubiq-cerpt:™:
"Mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers.
Stung by growing defaults, lenders are offering borrowers fewer ways to avoid purchasing private mortgage insurance. Mortgage insurance, required for buyers who are unable to make a full down payment or who have insufficient credit histories, reimburses lenders in the event of a borrower default. But over the past few months, mortgage insurers have been declaring more and more of the U.S. a "declining market," raising the requirements and making such insurance harder to obtain. The result: another hurdle for home buyers, and yet another wrenching change for the struggling housing market.
While it’s difficult to gauge the severity of the impact, industry executives concede insurers’ tighter standards are affecting the market. At ShoreBank Corp., a community-development bank with branches in Chicago, Cleveland and other cities, the insurers’ tighter standards are "wreaking havoc," says Michelle Collins, director of mortgage lending. For a popular conventional loan package, "easily 70% of the previous set of borrowers will not be able to buy," she adds.
The spreading restrictions are a symptom not only of the housing and credit crisis but of the mortgage-insurance industry’s own huge losses. The insurers face massive borrower defaults on loans that were approved when securing a mortgage was far easier."
Geez, don’t these people know they are slowing down our great engine of commerce? Next thing you’ll know, lenders will want to make sure they get paid back also! Where will this madness end?
Why Barron’s Housing Cover Is So Terribly Wrong (July 12, 2008)
Mortgage Insurers’ Declining Markets
Mortgage Insurers Raise Bar
Potential Home Buyers Face Stricter Standards, Higher Costs
WSJ, July 15, 2008; Page A1