Sunday, March 13, 2005

Mortgage Insurers Back Away From Speculators

In what could be bad news for housing speculators, two private mortgage insurers have announced they will quit insuring buyers with "risk exposure". PMI Mortgage Insurance Co. and MGIC Mortgage Insurance Corp. are limiting the number of policies per person and are putting caps on the amounts insured.

Kevin Harney writes, "The problem, say insurers and others in the mortgage industry, is that when property appreciation rates decline in the hottest markets, speculators are likely to be stuck with properties they can't sell at the prices they need. Negative cash flows are then likely to push them into default."

Of course actions like this could tip the housing markets lower as many speculators need the insurance to qualify for the loan.

4 Comments:

At 8:29 PM, Anonymous housebubble.com said...

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At 11:52 AM, Blogger Ben Jones said...

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Great site, happy to add your link...Ben

 
At 2:29 PM, Anonymous Anonymous said...

say, isn't the real story here that pmi is putting a $350k cap on all it's exposure with mortgages (in places like the bay area). the headlines (and initial part of the article) are discussing "speculators". but really, it could be perfectly reasonable to stop lending to folks with 3 or 4 houses. it's the other part that seems to be underplayed. here is the quote from the la times:

"that it would no longer insure new loans made to borrowers who already have more than four mortgages outstanding or who represent more than $350,000 worth of "risk exposure" to the company."

http://www.latimes.com/business/la-re-harney13mar13,1,3925237.story?coll=la-headlines-business&ctrack=1&cset=true

 
At 2:55 PM, Blogger Ben Jones said...

anon,
your right about the cap, it should slow down retail purchases as well. "Mortgage insurers generally cover the first 25 percent of a lender's losses on a home loan that goes belly-up, but in some cases they cover even more." So they may insure a home costing $1.4 million, still a nice shack, even in SF..Ben

 

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