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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2008

MI: Consumers’ New Friend?

As mortgage insurance gains popularity, providers are offering more benefits

In trying times, people crave familiarity. This is especially clear in the mortgage and housing market, where what was once old is new again.

Interest rates are greater than 6 percent.

Downpayments often must now be 10 percent or more.

The old 30-year fixed-rate mortgage is again common.

Many homebuyers who can’t afford large downpayments are turning to loans with mortgage insurance (MI) to buy their homes. In fact, this past June, MI in force was up 18 percent from the previous year, according to the Mortgage Insurance Companies of America.

The old idea that MI only benefits lenders is changing. Mortgage-insurance products today come with many added protections at no extra cost. Together, these new features are designed to make MI loans more consumer-friendly and to offer additional security. Mortgage brokers who understand these features can explain to their clients why a loan with MI might be a good option.

Some MI-providers are offering homeownership assistance. In the second quarter of 2008, RealtyTrac found that foreclosures increased 121 percent year-over-year; the Mortgage Bankers Association reports that delinquencies are growing, as well.

The fear of foreclosure looms for thousands of U.S. homeowners. For lenders, servicers and investors, foreclosure is a costly process that benefits no one. Home-owner-assistance programs can help keep delinquent borrowers in their homes and save consumers thousands of dollars.

In addition, consumers are increasingly concerned about the impact unexpected expenses or job loss could have on their ability to pay their monthly mortgage bill. This past August, the national unemployment rate was 6.1 percent, its highest level in five years.

Some MI loans now also include job-loss-protection insurance. This not only safeguards homeowners financially in the case of involuntary unemployment, but it also gives them some peace of mind.

In response to trepidation among homebuyers, many mortgage-insurers are encouraging financial literacy among their customers by offering financial education and homebuyer-counseling programs that include discounts on their mortgage insurance. Courses on the homebuying process teach borrowers how to select the right home; plan for home repairs and maintenance costs; prepare for closing; and manage money and taxes after they have purchased their home. Research by Freddie Mac and the Harvard University Joint Center for Housing Studies found that mortgage loans belonging to borrowers who completed an in-person homeowner-education course are less likely to fall into delinquency.

In addition to feeling secure in their homes, consumers want to keep more money in their pockets. Because they typically have fixed rates, MI loans are not subject to interest-rate resets, and monthly payments decrease significantly when the borrower builds enough equity to cancel the insurance.

In addition, mortgage-insurance-premium payments are now tax-deductible for many borrowers whose loans close or have closed between 2007 and 2010.

Brokers who get back to the basics with mortgage insurance and understand what some MI-providers are offering can in turn help their clients realize their dream of homeownership.


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