That’s something we haven’t seen in a long time. A non-governmental mortgage related company just made it easier for some people to get a loan! (Not in Arizona, unfortunately, but it’s a good new trend anyway.)
Governmental and non-governmental lenders have been continuouly making mortgage loans harder and harder to get by increasing the minimum down payment and the minimum credit score. When fewer people can qualify to borrow money to buy homes, demand for homes and home prices soften. These more stringent policies are prudent but nevertheless, they lower the demand for homes.
Non-governmental lenders don’t want to lend money on homes that are falling in value.
This week, however, PMI which is the leader in private mortgage insurance, relaxed it’s requirements in “non-distressed” areas of the United States. Now, this is a big change.
PMI Group expanded its eligibility and underwriting guidelines for a number of loan products it insures, in many cases increasing maximum loan to value (LTV) thresholds.
Although the changes themselves weren’t large, the direction of the changes was a big change.
These looser standards don’t apply to Arizona but they will eventually when Arizona is no longer on PMI’s distressed markets list. I expect/hope that Arizona will be off of PMI’s distressed markets list by this time next year. I would be quite surprised if Arizona were still on their distressed markets list in 18 months.
Right now in certain distressed markets like Arizona, Nevada, California and Florida, PMI requires a minimum 10% down and a 720 credit score for single family homes and for condos 15% down and a 720 credit score. Few people are using non-governmental mortgages (paired with PMI) because FHA is at 3.5% down with a minimum of 620 credit score.
In the non-distressed markets, PMI is much more competitive. It requires a minimum of 5% down and a 680 credit score.
As PMI’s mininum down payment and credit score decline for Arizona, the non-governmental mortgage industry should be able to get traction again. When more people can qualify to borrow money to buy homes, demand for homes and home prices will strengthen.
On the other hand, by the time PMI gets down to a minimum 5% down payment in Arizona, interest rates will likely be much higher than today and higher interest rates will hurt the demand for homes.
Nevertheless, what caught my attention was that a mortgage related company was actually loosening their standards instead of tightening them.
Summary of PMI Changes