InsuranceThought — Blogs About Insurance

The sun may finally be coming up on the mortgage insurance horizon after a long, dark night during which mortgage insurance all but evaporated for coverage of loans above 80% loan to value (LTV).

In an effort to escape continuing problems by hurtling down the slippery slope of the housing market, mortgage insurers actually further crippled an already limping market by eliminating coverage for the majority of loans – not just non-conventional (otherwise known as sub-prime), but for borrowers who had strong credit and solid employment histories wanting to make less than a 20% down payment as well.

These same mortgage insurers have now begun loosening their tight restrictions on at least some of their loan programs, an indication that things may be taking a turn for the better in the relatively near future.  An example – loans up to 97% flex in stable markets granted to borrowers with a 700+ credit score.

Let’s take a look at why this will be good for the housing market as well as our economy. Let’s say a home seller transferring to another area has sold his or her home, but with a large loss of equity; perhaps this person even had to take money from savings to pay the difference between the existing mortgage and the money that was paid for the home when it was sold. This would, quite obviously, leave this individual – who is stable and credit worthy – unable to pay a 20% down payment on a new home.

Buyers who have had long-standing good credit and may have assets they do not want to remove from higher yielding investments are perfect candidates for higher LTV loans despite what still may be considered an uncertain market.

Despite the fact that we are likely facing yet another round of foreclosures and defaults because of resetting rates on conventional mortgages, insurers are feeling a sense of certainty that we have – or are about to – hit rock bottom. There’s nowhere to go from here but up!