Mortgage Insurance Returns

From Housing Wire:

It’s this simple: when a mortgage exceeds 80 percent of a home’s value, the GSEs are required by charter to have credit support on the portion of the loan above 80 percent in the form of mortgage insurance, resource to the seller or seller participation greater than 10 percent. — mortgage insurance.

Likewise, in the traditional lending markets of yore, lenders also commonly required MI on primary non-GSE conventional loans with LTVs over 80 percent.

Brokers and lenders aggressively marketed the so-called 80-20 (80 percent first, 20% second lien for 100 percent financing) and 80-10-10 (80 percent first, 10 percent second lien, 10 percent down) and other loan combinations as more affordable than MI.

Piggy-backs became extremely popular.

For example, in first half 2006, data provided by UBS analysts in January of this year found that the percentage of piggy-backing recorded for prime ARMs was 31 percent, Alt-A ARMs 54 percent, subprime ARMs 35 percent, Option ARMs 30 percent, Prime Fixed 24 percent, and Alt-A fixed 26 percent. Only fixed rate subprime deals disclosed a relatively low 8 percent rate of piggy-back financing.

As piggy-backing expanded, MI volumes shrank. By one estimate, piggy-back lending ate over 40 percent of MI providers’ previous market share before the loan market imploded.

Based on the weighted average of original LTV and CLTV data across all Freddie Mac pass-throughs (ARM, Fixed, etc.) by origination month, borrowers’ leverage peaked in 3rd quarter 2007 at 76.9 percent LTV and 80.2 percent CLTV, according to data provided by eMBS, Inc. Tighter credit conditions have shaved both measures sharply since that time, to 70.1 percent LTV and 72.9 percent CLTV as of May 2008 originations.

The return of mortgage insurers doesn’t mean a return to traditional lending standards, but it does make insurers the final arbiters of credit requirements for over 80 percent LTV.


About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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