The US Government is becoming the fastest growing
mortgage insurance company in America today. U.S. Mortgage loans insured by the U.S. government in June leaped to the highest share of total loan applications in nearly two decades according to the Mortgage Bankers Association.
In June, the share of Government-insured loans jumped to 35.9 percent, the highest since November 1990 compared to 25.7 percent in May 2009 and 27 percent in June 2008. For historical sake, the lowest share since the Industry group began tracking applications weekly in January 1990 was 5.8 percent in August 2005.
Associate Vice President of Economic forecasting at the
Mortgage Bankers Association said "A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than
conventional loans. In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance."
The government share of insurance for
new home loans also rose to 38.6 percent last month from 27.8 percent a year ago. The record low was set in August 2005 at 6.8 percent.
The Mortgage Bankers Association believes that the demand for refinancing loans through the government programs has been more volatile than purchase requests, based on sharp swings in interest rates.
What is Mortgage Insurance?Mortgage Insurance, known as either Lenders Mortgage Insurance (LMI) or Private Mortgage Insurance (PMI) is an insurance payable to the lender or trustee for a pool of securities which may be necessary when taking out a mortgage loan. It is insurance to offset losses in the case where a home owner is unable to repay the loan and the lender is unable to recover its costs after a foreclosure or sale.
The rates for this insurance varies, but is typically around $55/month per $100,000 financed or as high as $1,500 a year for a typical $200,000 loan.
The actual cost of PMI or LMI, varies and is expressed in the following factors:
- Total loan value
- Loan term
- Loan type
- Proportion of the total home value that is financed
- Coverage amount
- Frequency of premium payments
The insurance may be payable up front or capitalized on the loan in the case of a single premium product. The insurance is typically only required when the down payment on a mortgage is less than 20% of the sale price or appraised value, also called LTV or
Loan-To-Value ratio.
Mortgage Insurance is also only typically necessary for a fixed period of time, until the principal reaches 80% or sooner than that. The cancellation of the mortgage must come from the servicer of the Mortgage. Often, the servicer will require a new appraisal to determine the LTV before letting PMI or LMI be cancelled or expire on a property. This re-appraisal will look at:
- Loan amount
- Loan-To-Value ratio
- Occupancy
- Documentation provided at loan origination
- Credit Score of applicants
Sometimes, a servicer may require PMI / LMI for longer periods if they feel that there is still a significant risk of value loss on the property.
The good news is however, that Mortgage Insurance became tax deductible in 2007. For some homeowners, this made it more affordable to get Mortgage Insurance, than a secondary loan.
By: Favian Clai
