With the rollout of President Obama's Housing Recovery Plan there are both skeptics and supporters. It is natural with any type announcement of this magnitude to have us and them, him and haw, shuck and jive and a lot of other bantering going on across the aisle. One thing could be for certain is that if Fannie Mae and Freddie Mac guarantee mortgages above 80 Loan to Value as the President has indicated, Private Mortgage Insurance - PMI companies could be in for a world of hurt.
PMI companies typically have made literally a killing in the housing and mortgage industry insuring mortgage loans that go above the 80% LTV mark. Most mortgages written over the past 10 years, except for the 80/10/10, 80/15/5, and the 80/20 mortgages, have been mortgages with less than 20% down payment. PMI companies have made ownership possible for many Americans, but they have also gained quite a bit of revenue with virtually having no competition for conventional loans - until now.
Fannie Mae and Freddie Mac To Back Mortgages With Greater Than 80% Loan To Value
President Obama's announcement that they would allow Fannie Mae and Freddie Mac to back mortgages above 80% Loan to Value could put PMI companies out of business as there will be very little demand for there insurance services any longer. We will see how this shakes out in the future as we could be seeing an announcement that some major PMI companies will be laying people off.
The experts predict that this one change could impact as many as 4-5 million households in the United States. This is a significant number of homes that could be saved from foreclosure if the homeowner is allowed to refinance without PMI. Without PMI a homeowner could afford to pay more towards their mortgage.
California - Arizona - Nevada - Texas - Florida Will Additional Housing Recovery Assistance
However, in some states like Arizona, California, Nevada, Texas and Florida where property values have significantly dropped, this change in allowing Fannie and Freddie to back higher LTV mortgage might not have much impact. Other measures will need to be taken which is what the rest of the Obama Housing Recovery Plan was about.
