Private Mortgage Insurance Getting Harder and More Expensive To Get

Private mortgage insurance (PMI) is getting more expensive and harder to obtain and the trend is just beginning. With private mortgage insurance companies losing millions, if not billions, they have to make up those losses as well as protect themselves in the future.

Private mortgage insurer Radian Group Inc. just reported a $1.2 billion loss in 2007. Rivals PMI Group Inc. and MGIC Investment Corp. reported losses totaling $1.47 billion in 2007.

In an effort to stem losses, Radian and other private mortgage insurers have tightened standards and raised their rates for borrowers with low credit scores and for loans with low down payments. On Dec. 17, Radian announced that beginning this month, it would not insure alt-A loans with down payments of less than 5 percent, and said down payment requirements would be boosted by 5 percent on all loans in markets experiencing price declines. Radian has also introduced new rate cards effective Feb. 1.

Rivals PMI Group Inc. and MGIC Investment Corp. have also raised rates and tightened underwriting standards.

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Will Private Mortgage Insurance (PMI) Soon Be Tax Deductible and Better Than A Piggy-Back Mortgage?

A post on Mortgage New Daily entitled "PMI Deduction Buried In The Closing Acts Of Congress" reports that Congress may have passed a bill ammending Section 6050H of the Internal Revenue Code. If this is so and the bill is signed by the President, PMI will be treated as interest and will become tax deductible.

Many consumers have avoided PMI by obtaining a piggy-back mortgage or "2nd trust" for the remaining financing amount over 80% LTV. The interest on the piggy-back mortgage is tax deductible and one of the reasons why the option is so popular.

In speaking with a lender today, if the bill becomes law, it was explained to me that,

• financing less than $400K and going with an 80%+ LTV loan and PMI may be the best option for you.
• financing more than $400K and getting a piggy-back mortgage without PMI may be the best option for you.

Though it hasn’t officially been passed, there’s plenty of discussion going on within the industry already. And we’re sure to see plenty of debate between lenders and mortgage insurance companies on which is better.

We’ll have to see what happens next month when it’s put before the President to sign.

Check with an experienced and reputable lender and tax professional for clarification and to see which loan program is best suited for you.