Notes from a mortgage broker in Charlottesville

Thanks to a conversation in a closing yesterday morning:

1 – Many of his lenders are eliminating second mortgages in favor of PMI (which is tax deductible).
2 – The 22903 zip code may be marked by Fannie Mae as a “declining market” – our closing yesterday indicated as much.


Times are changing; choose knowledgeable representation you trust.

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  1. Scott March 21, 2008 at 11:26

    That’s very interesting indeed! 22903 is fairly diverse in terms of housing stock, but I believe it contains some of the more bubbly housing locally.

    Is the mortgage change in favor of PMI or is it that they’re eliminating 2nds? 2nd lien-holders are generally left holding the bag for the full amount if things go wrong in a declining market, so it seems like lenders really only want firsts at this point – if that means the LTV is such that the borrow has to pay PMI, well, that’s the cost.

    I expect we’ll start seeing PMI premiums take off as the short foreclosures pick up steam.

    [snark]Wait…does that mean it’s not ‘different here'[/snark] I guess it’s not always local.

  2. Matt Hodges March 22, 2008 at 06:22

    Lenders are having a hard time finding investors for 2nds, so the change towards PMI is a fact of life for many buyers, if they do not have 20% to put down.

    On the down payment side, Freddie has removed their 100% product, due to risk and the fact that PMI companies have removed insurance for that product. Fannie probably will have to follow suit, once all PMI companies cease that insurance. That steers many buyers towards FHA, at a 3% contribution.

  3. Scott March 22, 2008 at 12:18

    Hi Matt –

    I may have been picking nits with my choice of terms here – certainly, as a practical matter, not being able to do 80% on the primary forces folks into PMI. That’s not quite the same spin as implying that PMI is now somehow a preferable product for the consumer or lender relative to a 2nd. I think the return of a true downpayment requirement removes some prior market distortions – someone who borrows their 20% downpayment isn’t meaningfully different from someone who takes out a first for >80%, from a risk perspective.

    It’s a good thing for pricing sanity (interpreted as bringing home prices back in line with incomes) to have these downpayment and PMI requirements return. I think there’s just a longer lag time for the losses to start piling up in the PMI industry, and you are right: we’ll see the 100% PMI lines dissappear. Even just a 3% (nominal downpayment) will sharpen this correction – particularly in very pricey markets like C’ville – I’m curious, if you can share, what percentage of your clients actually have a ~$10k downpayment for the median home price in our area?

    Even if the Fed. does do some kind of massive MBS buyout, the future trend of requiring downpayments is really going to change the market.


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