Lenders Getting Tougher – Blackball Many States

Whenever home loan borrowers put down less than 20% of the purchase price, they are required to purchase mortgage insurance to protect the lender in the event they happen to stop making payments on their loan. Companies who insure mortgage loans recently refused to insure home loans in California, Florida, Arizona, Michigan, Ohio and Nevada. Each of these state apparently have been experiencing too many foreclosures and decline in home values. Nearly 25% of the zip codes across the nation have been targeted as having too high of risk for the mortgage insurance companies to continue issuing insurance. The largest mortgage insurer, MGIC, just put metro Denver and Weld County on their “restricted” markets list. They now will only cover 95% loans with the borrower being required to put at least 5% of the purchase price down at the time of closing. If the borrower’s credit score is lower than 620, they must put at least 10% down. Radian and MGIC as well as most other mortgage insurers are also increasing their premium rates for all customers.

Buyers in the future will be required to have much larger down payments – (at least 5% to 20% down payment depending on the insurer in these blackballed zip code areas), a higher credit score and pay a higher mortgage insurance premium. This will result in far fewer buyers being able to qualify to purchase homes. In the affected areas, it will likely mean a continued decline in property values since there will be a decrease in the number of buyers. The old economic supply and demand equation will be hard at work for many months to come. Less demand equates to lower prices.

Be sure to have your Realtor(r) identify which areas are showing appreciation v. s. decline in values before you purchase your next home.