Unless you are in the mortgage industry, you probably haven't heard about the Mortgage Insurance Industry is experiencing HUGE losses.  Public company MGIC Investment Corp-symbol MTG just announced today that they lost 1.5 BILLION DOLLARS LAST QUARTER ALONE.  PMI Group-symbol PMI and Radian Group Inc-RDN might be next.  They haven't announced their earnings yet.  Since they are all in the same business it might be a logical inference to assume they will be announcing less than positive news.

What PMI did do this week is send out a letter to mortgage broker clients like myself with a guideline change effective for March 1st.  Basically, they are not going to be insuring the all the same loan programs at the higher loan to value 100% limit that they once did.  They are also raising their cost of insurance.  What does this mean to a consumer?  YOU need to buy now before the programs change. Most companies will allow you to close on an older approved program at the lesser cost mortgage insurance, as long as you are approved with a mortgage certificate by a certain date.  PMI told me when I called them that I needed to have my client's mortgage insurance certificate in hand by March 1st.  Some area of the country are also being designated as declining areas, this too is a reason the insurance companies are stopping to provide insurance for high loan to value loans.  If you are a first time buyer-it's time to take action.

The higher cost of MI and greater down payment requirements are defensive measures put in place because of all the foreclosures and defaults in mortgage loans.  I can't blame the mortgage insurance companies, in fact I commend them for being proactive and protecting their business.  At the same time, if you are a buyer who needs the maximum amount of financing-such as 100%-you might not be able to get it.  Not all programs are affected by this change and not all mortgage insurance companies have changed their guidelines-YET.  The window of opportunity is here and now.  This lack of liquidity will remove more potential buyers from the real estate marketplace and make the inventory of unsold homes that much worse.  That in turn will put more pricing pressure on the existing inventory of homes.  What a viscous cycle. 

We have been in this business since 1986.  We've seen something similar in the real estate and mortgage markets back in 1989-1991 during the Resolution Trust days and the first Gulf War.  This time it seems a little more severe in nature.  If you are contemplating buying, NOW really is the time to buy, especially if you need underwriting flexibility or a low down payment program.  Visit my Minnesota real estate site to begin an online search for a new home.