Mortgage Insurers Feel Pinch, Pull Back on Loans

As more home loans fail, lenders ask more of beleaguered backers
By Clay Dillow,  Newser Staff
Posted Jul 15, 2008 9:51 AM CDT
Treasury Secretary Henry Paulson and the Bush administration hammered out a process to save Fannie Mae and Freddie Mac over the weekend, hoping to ease fears in the market.   (AP Photo/Manuel Balce Ceneta)
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(Newser) – Mortgage insurers facing mounting defaults are tightening their standards, adding another hurdle for potential homebuyers, the Wall Street Journal reports. Beleaguered and risk-averse banks are making more mortgage applicants apply for insurance, just as insurers are declaring more parts of the country “declining markets.” making insurance harder to obtain. The result is “wreaking havoc” on the industry, one bank representative tells the Wall Street Journal.

Loan defaults coupled with slipping credit ratings have forced insurers to be more prudent—"Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting," says one risk officer—such as requiring 10% down payments, compared with 3%-5% previously. And premium prices are rising. Some brokers have turned to the Federal Housing Administration’s more lenient loan programs, but the FHA also started charging higher premiums for the first time on July 1.