MGIC Investment Corp., the nation’s largest mortgage insurer, who last week said it would raise prices and limit coverage, revealed details of its new plan late Friday.
The Milwaukee-based mortgage insurance company plans to limit coverage to borrowers with poor credit, while charging more for higher-risk loans.
Going forward, MGIC will no longer insure home loans for borrowers with credit scores below 575 (subprime), according to Mike Zimmerman, vice president of investor relations for MGIC. He said the average Fico score on new loans is roughly 700.
MGIC will also limit coverage in harder-hit parts of the country, including California and Florida, where the max loan-to-value will be capped at 95 percent.
Additionally, if the property is within a declining market, MGIC will limit how large of a loan it insures.
The company will also charge more for loans that exhibit layered risk, such as loans with lower credit scores combined with higher loan-to-values.
That could lead to a hefty 75 percent increase in payment depending on the value of the loan.
It is also believed that MGIC will only insure stated income loans tied to self-employed borrowers, reducing the risk of early default by homeowners who overstate their income.
“Where there’s multiple risk layering going on is where most of these restrictions are coming in at,” Zimmerman noted. “We think it’ll all be helpful, certainly incrementally, but it’s difficult to peg what the benefit will be in the longer-term.”
MGIC Chairman and Chief Executive Curt Culver said the changes should limit losses and boost revenue for the under-pressure mortgage insurer.
The company has paid $586 million in claims through the beginning of November and expects to pay $875 million total in 2007, up sharply from the $611 million paid during 2006.
Shares of MGIC finished the day up 38 cents, or 1.43%, to $26.95, far below their 52-week high of $70.10.