Also effective that date, in all "declining/distressed" markets, Genworth will not touch cash-out refinancings, investment properties of any type, nontraditional credit applications, construction/permanent loans or adjustable-rate mortgages with initial adjustments within the first five years.
In its advisory, Genworth said the new restrictions are intended to promote "prudent underwriting standards" in light of higher risks prevailing "nationally and at localized levels."
PMI Group, another high-volume insurer, banned cash-out refinancings, limited documentation loans and all mortgages secured by investment properties in "distressed" markets. In non-distressed areas, cash-out refinancings on second homes and rental houses no longer are eligible for coverage, nor are interest-only loans on investment real estate and all mortgages on properties containing three to four units.
PMI also boosted minimum credit score requirements for "jumbo" loans nationwide to a 700 FICO, and now will require at least 10 percent down payments. The company also ruled out "stated income/stated asset" mortgages on duplex purchases, where one unit is occupied by the owner and the other is rented.
MGIC, the largest private mortgage insurer, recently eliminated coverage of all "option ARM" loans that have either scheduled or potential negative amortization features that increase borrowers' principal debt rather than reduce it monthly. During the boom years, option ARMs were wildly popular in major metropolitan markets across the country. MGIC's new ban is nationwide.
Why the continuing rollbacks and how long could they continue? Lenders and insurers are carefully studying the sources of their greatest losses from mortgage vintages between 2003 and 2007. Where they see inordinate risk, they are reacting much as they would to a disease: They are eradicating it.
In the meantime, consumers have little choice: Get used to it. The excesses of the boom begat the credit squeeze, and it's not going away anytime soon.
kenharney@earthlink.net
