We haven’t heard much about this problem, yet. Perhaps one of our readers could give us more insight?

Basically, MGIC, the nation’s largest private mortgage insurer, is tightening up its lending guidelines.

That’s a good thing, right? Only those who can afford to buy will be qualified to borrow.

But, it might make it so difficult to borrow that it has an undesirable effect on the entire real estate market (and US economy).

Based on what I read here, and what I read in Lou Barnes recent column (an Inman News feed item … which I know you all hate), I’m starting to suspect we’re going to have government intervention in to the mortgage insurer market.

Hey, it happened with savings & loans, it happened with the airlines … why not mortgage loans?

From the Washington Post:

On Feb. 6, the oldest and largest private insurer of home loans — MGIC — issued a bombshell warning that in much of the country, it would no longer provide coverage on cash-out refinancings; reduced-documentation loans; mortgages with down payments less than 5 percent; loans for rental houses and other non-owner-occupied investor properties; and mortgages with negative amortization features, such as payment-option loans.

The bans, which take effect March 3, cover a number of markets, including the District and its suburbs. Four whole states are on the list — Arizona, California, Florida and Nevada — and about two dozen metropolitan areas. Among them, in addition to the Washington area: Atlanta; Baltimore; Boston; Chicago; Denver; Detroit; Minneapolis; the Long Island and New Jersey suburbs of New York; Portland, Ore.; and Tacoma, Wash.

MGIC also tightened eligibility standards nationwide on a number of low-down-payment loan categories …

… What are the cutbacks likely to mean in practical terms? They could be felt almost immediately by buyers who can’t come up with substantial down payments. They will need higher FICO scores. They may also find certain types of loans — for vacation condos and small-scale rental investment properties, to cite just two — unavailable.

Talk with your lender.

Source: Mortgage Insurer Tightens Up – By Kenneth R. Harney, The Washington Post

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