Comments on: Mortgage Rates on a Friday Afternoon

By: Mortgage Rates on a Summer Day & Adverse Market Pricing | Seattle Real Estate ~ Rain City Guide

Fri, 15 Aug 2008 21:00:25 +0000

[...] a beautiful sunny 85 degrees in Seattle and mortgage rates, for the most part, are pretty much the same as what I posted last week (as of 1:00 today). That makes for a real easy [...]

By: Roger Ingalls

Roger Ingalls — Fri, 15 Aug 2008 05:43:03 +0000

Sniglet:

Thanks for the link

Sometimes it is the “throwaway line” in a news story that catches my eye.

The writer states:

“With FHA mortgages, which require as little as 3 percent down, the government provides the insurance.”

Really?

I have been told many times that the FHA is self insured, as in the premiums paid in (including the 1.5% upfront fee, and the everpresent .5% monthly fee), pay for the admin overhead and the claims paid out.

I have never audited their books to challenge that claim, but I have no reason to believe that it is taxpayer money that is being used to pay out on claims.

Does anyone have evidence to the contrary?

Re subprime mortgage insurance, I understood it was not tacked on as a separate fee, but built into the rate. The lenders then took out insurance policies from the major mortgage insurance companies to spread out their liabilities. Probably wasn’t nearly enough insurance to cover the losses.

Re HOA’s, I studied them carefully, and concluded that they probably made some kind of sense for a financially disciplined individual, with well above average income and expenditures, but not for the average (or slightly above average) Joe.

By: Rhonda Porter

Rhonda Porter — Thu, 14 Aug 2008 22:33:27 +0000

Conventional mortgages over 80% LTV have private mortgage insurance–whether that’s borrower paid or lender paid (financed into the rate).

I have no idea how pmi was priced on loans ordered by the lelnder without the borrower’s knowledge (like second mortgages and conventional mortgages under 80%).

Sniglet, I’m all ready seeing a majority of loans that are over 80% LTV (and even a few 80% LTV and under) go FHA.

By: Sniglet

Sniglet — Thu, 14 Aug 2008 22:27:34 +0000

Rhonda wrote: “LTVs over 80% required private mortgage insurance.”

Just to clarify, you are saying that all non-FHA loans with over an 80% LTV require private mortgage insurance?

If this is true, it would seem that a collapse of the private mortgage insurance sector would simply drive all loans with higher than 80% LTVs through FHA. Problem solved…

By: Kary L. Krismer

Kary L. Krismer — Thu, 14 Aug 2008 22:19:07 +0000

PMI on a 20? That would be very risky. Also, how would they price that–it would seemingly have to be a percentage of the total loan package.

By: Rhonda Porter

Rhonda Porter — Thu, 14 Aug 2008 22:12:51 +0000

It’s my understanding that some lenders obtained pmi on loans without the borrowers knowledge (I’ve heard of second mortgages having pmi coverage, for example) where the lender wanted to reduce their exposure to risk.

LTVs over 80% required private mortgage insurance.

By: Kary L. Krismer

Kary L. Krismer — Thu, 14 Aug 2008 22:10:41 +0000

I should have read Sniglet’s article before posting. I didn’t realize they had exposure to sub-prime. Apparently how they tried to cope with their main “customers” moving to 80/20s.

By: Sniglet

Sniglet — Thu, 14 Aug 2008 22:06:51 +0000

Rhonda wrote: “FHA can only do so much”

Why couldn’t FHA just handle ALL loans if the mortgage insurance industry went bust? What would be so terrible about that? They allow 3% down, and no need for some private insurance.

What percentage of loans wind up with private mortgage insurance these days? Do all Freddie/Fannie loans require it?

By: Kary L. Krismer

Kary L. Krismer — Thu, 14 Aug 2008 22:06:00 +0000

The problem I see with PM insurers is they don’t have the revenue streams they should have because until recently most people avoided PMI by going 80/20s. So now they’re being asked to take on a lot of risk from loans all of the same era, which is more risky.

Stated differently, they’re more at risk because they weren’t exposed to the peak of the market because they aren’t (and weren’t) getting revenues from the peak.

By: Rhonda Porter

Rhonda Porter — Thu, 14 Aug 2008 21:53:19 +0000

Sniglet, if conventional loans (fannie/freddie) went away (which I cannot see happening)…we would have FHA however FHA can only do so much. There would also be private financing, seller financing and hard money lenders… financing would be much tougher to come by.

Side note: with FHA, even if you’re putting 20% down, you still have upfront and monthly mortgage insurance.

Private mortgage insurance companies must be in an interesting postition.