MGIC Investment Corp (NYSE:MTG) – the drop of the delinquent loan
In recent years, MGIC Investment Corp (NYSE:MTG), Fannie Mae and Freddie Mac’s largest mortgage insurer has been harangued by losses running into billions of dollars. Mortgage insurers such as MTG cover potential lender-losses on loans that have been typically given to those borrowers who do not make a 20% down-payment while purchasing their home. Between April and May, there was a 3.6% drop in the company’s Delinquent-Loan Inventory. In May, primary new insurance rose from its $2.4 billion that it stood at in April, to $2.8 billion. MTG’s Q1 loss widened as lower investment gains resulted in a greater revenue drop.
What is mortgage insurance?
If the down-payment on your home is below 20% of the appraised value or the sale price, you will be required to get mortgage insurance. In effect, a mortgage insurance policy is a shield for your lender in the event that you end up defaulting on the payments. As a borrower, the premiums are paid by you, and the beneficiary is the lender. The two types of mortgage insurers: There are government insurers and private ones. The Federal Housing Administration is the main government mortgage-insurer. Numerous companies underwrite private mortgage-insurance, which is called PMI.
The PMI specifics….
PMI fees will vary, dependant on the down-payment as well as the loan amount. Annually, these could range from 0.3%-1.15% of the original loan-amount. Through 2013, mortgage insurance-premiums are tax-deductible, and there is a possibility that congress may extend the deductibility beyond that. It is important to keep track of payments on the mortgage principal amount. Once you have reached the point at which the loan-to-value ratio touches 80%, the lender should be notified that the PMI premiums have to be discontinued.
By the federal law, it is a pre-requisite that at closing, lenders have to inform the buyer about the number of years and months will be taken to reach the 80% level and then cancel the PMI. Lenders have to automatically cancel the PMi when the balance touches 78%. The housing market and the mortgage insurance one are intertwined and a gust of wind that shakes the former will also unsettle the latter.