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The Mortgage Professor: Some Well-Off Borrowers at a Disadvantage

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By Jack Guttentag

Furthermore, the current premium structure is replete with transactions that don’t qualify for insurance at any premium rate, but would have qualified in 2005. Here are a few:

On a cash-out refinance, insurance is not available at a loan-to-value ratio, or LTV, above 85 percent, no matter what the borrower’s credit score is.

If the property is a second home, insurance is not available at an LTV above 90 percent, no matter what the borrower’s credit score is.

If the property has three or four units, or if it will be held as an investment, mortgage insurance is not available, regardless of LTV or the borrower’s credit score.

Before the crisis, mortgage insurers competed against second mortgage lenders for the business of borrowers who could not put 20 percent down. These were called piggyback loans and were classified as 80/20/0, 80/15/5, 80/10/10 and 80/5/15.

In an 80/15/5 loan, for example, 80 percent of the property value was provided by the first mortgage, 15 percent was provided by the second mortgage, and 5 percent was the down payment. The riskiest of these to the second mortgage lender was the 80/20/0, with the risk declining as the borrower’s down payment increased.

According to data from my website, 80/20/0 deals were available until September 2007, 80/15/5s until December 2007, 80/10/10s until February 2008, and 80/5/15s until March 2008. That was the end of the piggybacks. Borrowers who put less than 20 percent down today have only the mortgage insurance option.

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