Mortgage Insurance

An often overlooked issue with obtain mortgage financing these days is mortgage insurance. Up until recently, if a client received an automated approval from Fannie Mae or Freddie Mac the mortgage insurance companies would issue mortgage insurance on the loan and base their decision on the "findings" from the Fannie and Freddie underwriting program. Oh how things have changed!

Now almost every mortgage insurance company has an "overlay" for any mortgage program they are going to issue insurance on. It is now fairly common to see a mortgage receive an approval from the automated underwriting programs (DU and LP), yet be unable to secure mortgage insurance. While Fannie and Freddie might accept a file with a 45% debt ratio on a 95% loan, acquiring mortgage insurance is a whole other matter! Without that mortgage insurance you don't have a loan.

To complicate matters, in years past loan officers were able to structure loans with a second lien and avoid mortgage insurance. As a loan officer I did a lot of 80-10-10 loans and even some 80-15-5 loans. When foreclosures skyrocketed and values fell, these second lien holders took some MASSIVE losses. As a result it is currently almost impossible to find a lender that is willing to be second lien on one of these loans.

Complicating matters is that by and large the mortgage insurance companies guidelines are not uniform. So now a loan officer not only needs to match a client with a lender, but also a client with an MI company. Further complicating matters is that not all lenders have agreements with all MI companies.