Mortgage Lender Also Factor : Insurance Rates Vary With Locale

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.

Because of greater risks, companies set premiums higher on adjustables than on fixed-rate loans, 25% higher at United Guaranty. And they also report taking special care before insuring condominium loans, and then charge higher rates than they do for the same types of loans on single-family detached housing.

MGIC will not insure investment property loans or 95% condominium mortgages in some market areas, according to Lacy. And the company hesitates to insure 95% loans that include seller contributions, the use of gifts for down payments and broker originations.

Mortgage insurers also have begun looking at loan terms, with positive results.

Short-Term Loans

“Short-term loans have only been in the marketplace a few years, but we already have seen a trend where they have a lower risk, primarily because equity builds up faster for the borrower,” said William Osterhout, vice president for marketing communications at Raleigh, N.C.-based General Electric Mortgage Insurance Co. (GEMICO).

GEMICO, MGIC, PMI Mortgage, United Guaranty and others have in recent months lowered the premium rate on 15-year fixed-rate mortgages, which had been priced the same as the premium on 30-year fixed-rate loans. United Guaranty, for example, sets premiums for 15-year loans 20% below premiums for 30-year loans after the first year. At MGIC the premium on 15-year loans is 25% lower than on 30-year loans.

“We’re really trying to make the rate fit the risk,” PMI Mortgage’s Breed summarized his industry’s new approach.