Mortgage Insurance Industry: 70% of Previous Buyers Don’t Qualify

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?

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Previously:
Why Barron’s Housing Cover Is So Terribly Wrong (July 12, 2008)
http://bigpicture.typepad.com/comments/2008/07/barrons-cover-g.html

Related:
Mortgage Insurers’ Declining Markets   
http://online.wsj.com/public/resources/documents/info-DECLINE0807.html

Source:
Mortgage Insurers Raise Bar
Potential Home Buyers Face Stricter Standards, Higher Costs
AMY MERRICK
WSJ, July 15, 2008; Page A1
http://online.wsj.com/article/SB121607937863152693.html

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What's been said:

Discussions found on the web:
  1. Mike in NOLa commented on Jul 15

    This looks like a great day for shorts: Bernanke is to testify and CNBC just announced that W is going to explain his solution for the mortgage crisis to us. I’m sure the last will include drilling in ANWR.

  2. Chief Tomahawk commented on Jul 15

    But I watched Kudlow last night and he said the housing market was just about to turn around…..

    FYI: Memo on my Citibank statement:

    “Currently, your maximum daily ATM cash withdrawal limit is $1,000 per account linked to your Citibank debit card. Effective July 18, 2008, your maximum daily ATM cash withdrawal limit will be changed to $1,000 per ATM card instead of per account.”

    Then there’s a “Dear Valued Customer” message from Vikram Pandit on the bottom saying “We are proud of our enduring strength as a global financial institution…”

  3. Jim commented on Jul 15

    I’m sure the last will include drilling in ANWR.

    …and the permanent elimination of estate taxes for any estate worth less than $75 billion, but over $50 million.

  4. Jim Haygood commented on Jul 15

    Would be nice to have a blow-up of the chart. If my eyes don’t deceive me, it appears that Bergen Co. N.J. and Rockland/Westchester/Putnam Co. N.Y. are not zoned as declining markets (yet … LOL!). And what’s going on with Da City?

  5. leftback commented on Jul 15

    The housing market and all of its attendant structures is broken. It’s time to recognize this and the damage that has been brought about by low interest rates via the increase in oil prices (via the law of unintended consequences).

    Why continue trying to help those who cannot be helped? It’s time to help those who made responsible choices by raising rates to support the $. If not, the bond market will eventually do it anyway – the steepening trade is on again, big time.

    Maybe Trichet has it right and the FED is all wrong……

  6. Vermont Trader commented on Jul 15

    Vix is almost at 30.. will it get there or is that the bulls line in the sand. i might have to take a stab here..

  7. kckid816 commented on Jul 15

    Housing is so yesterday. We’ve already got another bubble to take it’s place =)

    From Bloomberg

    Diamonds Attract Funds as Largest Gem Prices Surge 76% in Year
    “`Diamonds are getting rarer. The earth just isn’t giving them up,” said Sancroft-Baker in a telephone interview.”

    Gotta love that. They can be made now but they’re getting rarer and DeBeers still controls how much makes it to marker.

    http://www.bloomberg.com/apps/news?pid=20601093&sid=aKVjxYejpss0&refer=home

  8. LFC commented on Jul 15

    Why is it so difficult for some people (like Phil Gramm) to understand that not everybody should qualify for a mortgage?

    If you want a fun way to view historical real estate values, this video represents home prices since 1890 as a roller coaster ride. Kinda’ neat.

  9. Vermont Trader commented on Jul 15

    wow, good thing i was posting and not trading.

  10. Vermont Trader commented on Jul 15

    They are really holding the bid in the options today. someone is making a stand here…..

  11. michael schumacher commented on Jul 15

    VT-

    I took a little profit on LEH puts….. I just do not trust the CBOE and the games it plays with spreads. Got him to pay me what I wanted though…

    All about the exit strategy

    Ciao
    MS

  12. trail commented on Jul 15

    “Next thing you’ll know, lenders will want to make sure they get paid back also! Where will this madness end?”

    It just got mandated by the Federal Reserve:

    “July 14 (Bloomberg) — The Federal Reserve tightened its mortgage rules by requiring lenders to determine a borrower’s ability to repay…”

    I guess nobody ever thought you would need to tell a banker this part before…

  13. Vermont Trader commented on Jul 15

    MS – nice job holding on to those puts. i know it isn’t easy. ..

    BR – how about a stock pick for a market bounce?? we all know that there are a lot of companies still doing well.

  14. michael schumacher commented on Jul 15

    echo the request…..I’ve sort of lost touch with that side of the trade. Hard to see the good side when the overall picture is so bleak. Even profitable companies get taken for the ride down in this environment so that make’s it twice as hard in my view.

    I still have 25% of my position in LEH left. (Jan 20’s) nibbled on some Oct 2.50’s for shits and giggles. Did you see the “story” in the Post about how LEH should be taken private at a 25% premium…who in the hell would assume that liability??

    I laughed my ass off reading it…

    Ciao
    MS

  15. Francois commented on Jul 15

    “Did you see the “story” in the Post about how LEH should be taken private at a 25% premium…who in the hell would assume that liability??”

    The FED maybe?

    *evil grin*

  16. Carmen commented on Jul 15

    Mortgage insurers are hiring private investigators to track down mortgage fraud.

  17. michael schumacher commented on Jul 15

    “the fed maybe”

    I don’t think they can at this point.

    How smart was Cayne to get to the “alter” first? very IMO

    Still a slimebag though…

    Ciao
    MS

  18. NC Jim commented on Jul 15

    Eyeballing NC on the map it appears that two of the three highlighted areas contain large military bases – Fort Bragg and Camp Lejeune (on the coast). The third area could be around Seymour Johnson Air Force Base but hard to be sure.

    I wonder if this is a nationwide trend – depressed housing around military bases.

    Jim

  19. Lord commented on Jul 15

    Lenders in doing this are only lowering the value of the property and transferring it to the insurers. While it will reduce future problems, it will worsen current ones. I am not sure that makes much sense for them.

  20. Jojo commented on Jul 15

    “Next thing you’ll know, lenders will want to make sure they get paid back also! Where will this madness end?”

    It just got mandated by the Federal Reserve:

    “July 14 (Bloomberg) — The Federal Reserve tightened its mortgage rules by requiring lenders to determine a borrower’s ability to repay…”

    I guess nobody ever thought you would need to tell a banker this part before…

    Posted by: trail | Jul 15, 2008 11:14:10 AM

    =========================
    Yeah. Unfortunately, the rules don’t take affect until Oct 1 2009! We will not pass nor enforce any rules before their time (when we are long gone and out of office)…

  21. Paul in NYC commented on Jul 15

    So like, every major urban area is now a declining market.
    Heckuva job.

  22. Jessica commented on Jul 15

    Maybe they are barking up the wrong tree.
    Once you eliminate those borrowers who were only brought into the market the past few years, everyone else is not so bad. The real problem is not the borrowers, it is the collateral.
    Certainly for lenders, setting things up so that any fall in home values will come out of the borrower’s hide, not the lender’s is simple prudence (and overdue), but no amount of tightening of standards about borrowers can fix what is basically a problem with the collateral.

  23. The American Mind commented on Jul 16

    Economics Links07.16.08

    Growth risks, inflation fears, and financial market health were all a part of Ben Bernankes sober Congressional testimony.
    The idea of conspicuous consumption has evolved as Americans have gotten richer. Unique experiences and exc…

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