Stephanie:
Hello, and welcome to Mortgage Connects by MGIC bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Stephanie Budnik. And today we'll be talking to MGIC customer trainer, Jeff Platfoot. Welcome Jeff. So recently we have discovered that there's been an increase in the search term on coverage. And so when we're thinking about standard coverage and MI, you know, can you share a little bit more exactly about what MI coverage level is and why it might be so important?
Jeff:
Sure. Stephanie you know, the investors, which is typically for many lenders, Fannie Mae and Freddie Mac have standard typical coverage requirements with regards to mortgage insurance, and those requirements are based on loan to value and term. And there are a couple of different buckets that we can look at the first one, which is standard coverage for Fannie Mae and Freddie Mac is based on loan to values anywhere from 80.01% all the way up to 97%. So for instance, on a loan that requires 20% or 20 years or greater between the 85 and 90 loan to value the standard coverage is 25%. So those are set by the investor. In many cases, the majority of the loans are sold to the agencies, Fannie and Freddie with that said, there are also different requirements with regards to the home ready possible, or home ready program and the home possible program through Fannie Mae and Freddie Mac two. And those two programs are targeted more towards lower income borrowers, and then they require less standard coverage. So that same 85 to 90% loan to value on a 20 year or greater term only requires requires the same amount of 25% coverage, but that does change as the loan to value drops. Also, in addition to that, there's, what's called HFAs and HFAs are through your state housing finance authority, and many states have these, and these are programs that are geared and are also sold in many cases to an investor, many cases, Fannie and Freddie with that said they have reduced coverage as well through their state HFA chapter or charter, and the coverages there dropped substantially. So that same 85 to 90% loan to value. If this were going through a state HFA and use their coverage, they only required 12% coverage versus standard coverage of 25% on the Fannie Mae Freddie Mac that are not state charter based. So these coverages albeit standard do have different potential buckets that they fall in based on the type of loan program there is with that said, they're mapped out based with also in conjunction with automated underwriting, that you folks use desktop underwriter loan product advisor. And in many cases, those will, those findings or feedbacks will provide the amount of coverage that's required as well. With that said standard coverage through the agencies, through your investor, any loan that's 80% or greater is going to require that mortgage insurance coverage at the same time, if you have additional questions, don't hesitate. You can go to mgic.com. You can reference our training materials there for further assistance and guidance, or you can also please reach out to your local account managers. They'll be happy to help you out as well.
Stephanie:
Great information. I just have a couple of follow-up questions for you. Is there a time that, you know, you talked about the different coverage levels from the standard to different loan products or HFA, does the premium type matter for the coverage, or is that just still based off of that LTV?
Jeff:
The premium and how that is determined, has additional factors that are built in. Percentage of coverage required by the investor or the agencies will stay the same. So again, if I stay with that same scenario at the 85.01 loan to value to 90% loan to value, and if I stay inside of there, the agencies typically will require 25% mortgage insurance coverage with that said what the premium will be based on that 25% coverage that then pulls in many other different types of factors from ratios, again, the loan to value to credit scores, those types of things.
Stephanie:
Okay. That makes sense. And does the lender have the ability to set the coverage if for some reason they wanted a higher coverage on something, as long as it met that standard requirement?
Jeff:
I don't know if that's real common. I don't think a lender's going to ask for more than what's required when we see the standard coverage requirements. Those are the minimum requirements that are expected with that said, if this loan does not go to an investor, or if this loan does not go to Fannie Mae or Freddie Mac, maybe the lender is keeping this loan within their portfolio. Then at that point, they might request that they have a higher percentage of coverage because it falls outside of the agency requirements.
Stephanie:
Okay. That makes sense. And bringing the concept full circle. I know that we've talked a lot about coverage, but what does that mean? Like if a loan goes into default for a lender like this percentage, what does that mean?
Jeff:
What that means is, is mortgage insurance is protection for the lender in case of default. And if, for instance, a loan amount is a hundred thousand dollars. If we provide 25% standard coverage for that, and that loan were to go into default, the lender then would contact MGIC where once everything is put in place in a review is done, MGIC would pay 25% of that amount. So in that scenario CGIC would pay $25,000 in coverage of, to the investor, to the lender because that loan is in default.
Stephanie:
Okay. That makes sense. Well, this was great insight, and I hope that this provides our listeners just a little bit more information for those that are searching. And like Jeff said, no on the mgic.com training page, there is additional trainings available. We have our MI basics, for example, is something that you could listen to if you were looking for further insights on this and other topics. Jeff, thank you so much for your time. I really appreciate it. I hope that you have a great day.
Jeff:
Thanks Stephanie.
Stephanie:
Thanks for listening for all your latest industry insights. Subscribe to mortgage connects on apple, Stitcher, Google podcasts, Spotify, Amazon music, or simply go to mortgage connects.com.
