What you pay for mortgage insurance, or even whether you can get it, will vary, not only with the type of home loan you get and the size of your down payment, but also with the market in which your home is located and the identity of your lender, according to mortgage insurers.
Without mortgage insurance, which protects the lender even though costs are borne by the borrower, you won't be able to obtain a loan with less than a 20% down payment. Some mortgages, such as for investment properties, now require even larger down payments to avoid mortgage insurance, which can cost anywhere from 0.25% to more than 1% of the loan amount for a single year's premium.
San Francisco-based PMT Mortgage Insurance Co. is one of the growing number of firms whose premium rates are determined by the market area and the lender who originated the loan, as well as by the loan itself.
"We give lenders with good experience a discount of 10% or 20% on the standard premiums because they're giving us loans with a lower than average claims ratio," says George C. Breed, senior vice president, general counsel and secretary.
Passed on to Consumers
This lower rate, which has been granted to more than 100 lenders, can be passed on to customers, he explains.
Greensboro, N.C.--based United Guaranty Corp., according to President Charles M. Reid, also differentiates between lenders.
"Some lenders do have better track records than others," he says. "We're aggressive in trying to service them and do an outstanding job for them."
Milwaukee-based Mortgage Guaranty Insurance Corp., the nation's largest private mortgage insurer, now closely examines specific lenders and market areas and is prepared to deny insurance to lenders who fail to provide adequate quality control, according to President Bill Lacy.
"We don't approach this business on a national basis any more," he explained, "so we underwrite loans differently in Des Moines than we do in L. A."
He said that MGIC is especially concerned about cities and regions dominated by a single employer or industry.
California Not Risky
Los Angeles, and the rest of California, is not considered a risky area, and so home buyers should be able to obtain mortgage insurance and not have to pay extra high premiums, according to industry leaders.
"We're having a very good experience in California and are writing a lot of business in California," said United Guaranty's Reid. "The delinquency rates along the coastal states east and west are lower than the U.S. average."
PMI Mortgage also has "fine tuned" its premium schedules "to what state experience has shown us," Breed reports. "When we last made premium changes, we increased rates up to 20% in some states and reduced rates in one or two states."
California, he said, saw little change.
United Guaranty will not insure 95% loans or mortgages on investor-owned properties in Texas or Oklahoma, although it does provide insurance on these mortgages in other market areas, Reid noted.
New Types of Mortgages
"We still do write mortgage insurance in Texas and Oklahoma," he stressed, adding, "But we're more conservative."
Thomas LaMalfa, a vice president of MGIC, notes that a careful analysis of the losses that hit the industry beginning in 1985, forced it to "look at specific markets and at lenders to see who has the best records." The industry also has determined the different rates of risk for the many new types of mortgages, which "resulted in substantial premium increases for some."
"The industry and MGIC also have moved away from insuring 95% loans," he adds. "There's not a moratorium but each loan is very carefully scrutinized as to how it's underwritten."
Some companies will not provide mortgage insurance for 95% loans--those obtained with only 5% down--on certain types of properties, such as condominiums, or in certain areas, such as Texas, or from certain lenders.
If denied a 95% loan because of unavailability of mortgage insurance, PMI's Breed suggests that a home buyer try another lender.
"Or call the local sales and underwriting office of some mortgage insurer and say, 'I want to do a 95% loan; what lenders in my area are active in that program with you?' " he said. "We or our competitors would be glad to tell them."
Taking Hard Look
Mortgage insurance companies also have been taking hard looks at the many different types of mortgages.
United Guaranty, PMI Mortgage and others will not insure loans with the potential of negative amortization or loans with below-market initial rates. And they often won't insure uncapped adjustable rate mortgages. United Guaranty, for example, will not insure adjustable mortgages that lack a cap or have a cap that allows life-time rates increases of more than six percentage points.