The real estate blog.

Contagion is probably the best word to describe the far reaching effects of the housing downturn. Private mortgage insurance seems to be the latest portion of the mortgage business tightening standards and the fallout will remove conventional 100% financing programs from the marketplace.

I was first made aware of the problem when working with a client. The loan rep claimed Freddie’s expanded approval program, which offers 100% LTV, no longer has mortgage insurance available, which essentially removes that option from borrowers. This is not a Freddie Mac policy, but a condition of the marketplace. As a result, a program exists nobody can qualify for. This will soon be eliminated.

The same representative explained other approval levels should see the same thing happen. What

this means is 100% conventional loans will probably disappear quite soon. Meanwhile, my borrower hangs in the balance hoping to close before these changes take place.

Yahoo! News reported similar findings last week -

In recent weeks, mortgage insurers have flagged more than 9,600 ZIP codes in at least 34 states where they won’t insure certain types of home loans — those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.

Mortgage insurance protects the lender to 80% of the loan amount if the borrower defaults. Premiums vary depending on the risk factors. My loan rep said some policies can be as high as .97 - about $200 per month on a $200k loan. This cost is factored into debt to income ratios and can lower the amount of house a borrower can qualify for.

More news from the field states -

I have had two lenders tell me today that 100% loans are all but gone. They are advising anyone who is looking to finance 100% of a home purchase in the near future to check with a lender to see how this impacts your individual situation.

It seems the issue is with Private Mortgage Insurance (PMI) providers. As of early this week, the only remaining 100% PMI provider is Genworth. All of the other PMI providers are only issuing insurance for 97% of the purchase price. The word on the street is that Genworth will go to 97% maximum soon.If you’re looking to buy a home, be sure you are prepared to come up with at least 3% to 5% down. During the boom, it made sense to pay MI or take out a piggy-back second to get into a home as prices were appreciating faster than most people could save. In a slowing or declining market, that logic has changed. It makes more sense to have a down payment and soon it will become an absolute requirement.