PMI Will Limit Its Exposure To Multiple Loan Customers

Mortgage insurer The PMI Group here has adopted changes to its underwriting policies, cutting its potential exposure on consumers who have multiple loans.

Without giving a specific reason for the change, PMI reduced the number of loans it would insure per customer to four, from five. It also reduced its risk exposure per consumer to $350,000 from $400,000.

Recently, the National Association of Realtors revealed that 36% of all homes sold last year were second homes, showing the increase in people buying real estate for investment purposes.

A spokeswoman for PMI, the nation's second largest MI in terms of insurance-in-force, said the change was not in response "to anything in particular," adding that "we are always looking at our risk, we're always cognizant of it."

She added that PMI, like other players in the industry, has noticed an increase in investor loans.

Asked whether the MI is concerned specifically about delinquencies on investor loans she said no, but added, "We don't want it to become an issue."

A few weeks ago, the National Association of Realtors released a new study showing that the second-home market - vacation and "investment" properties - accounted for 36% of all homes sold last year.

The trade group, which for the first time did extensive research on the subject, found that 23% of all homes purchased last year were for investment while another 13% functioned as vacation homes. In 2004, a record 2.82 million in second homes were acquired, a 16% increase from the previous year.

Mortgage bankers fund the purchase of second homes and recently some executives have reported that many buyers are using "interest-only" mortgages to finance their deals.

Some MI officials, requesting their names not be used, said there is a concern that investors are speculating in the second-home market.

One official noted, "If they're not putting 20% down you can assume it's a leverage play."

MGIC Investment Corp., Milwaukee, the nation's largest MI, has a policy of insuring a maximum of five loans per customer or $1 million in mortgage debt.

Genworth Financial, Raleigh, N.C., the nation's fourth-largest MI, caps its exposure at four loans per customer.

Both MGIC and Genworth have not made any recent changes to its coverage policies in regard to multiple loans.

However, about 60 days ago, MGIC increased its coverage on "A" paper loans (90% LTV) to $650,000 from $550,000.

Dave Greco, vice president of credit policy for MGIC, said the overall increase in home prices in the U.S. spurred the MI to raise the dollar amount on its coverage.

Mr. Greco noted that delinquency rates on investor loans, historically, are higher than owner-occupied homes because investor loans "are not the homestead."

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