PMI Expands LTVs and Credit Scores in Distressed Markets

PMI Mortgage Insurance Co. is seeing signs of strengthening in markets the firm classifies as “distressed,” enough so that the private mortgage insurer is relaxing its requirements for loan-to-value (LTV) ratios and minimum credit scores.

The California-based insurer issued a bulletin last week announcing that it is raising the LTV to 95 percent for both purchase transactions and rate-term refinances in distressed markets, as long as the borrower has at least a 720 credit score.

In addition, PMI has lowered the minimum credit score requirement to 680 for LTVs at or below 90 percent on one-unit properties and condominiums. The LTV max for co?ops is 85 percent, and the lower credit score minimum of 680 also applies.

“We are encouraged that market conditions have improved sufficiently to enable PMI to expand LTV and minimum credit score requirements,” the company stated in the bulletin.

PMI also announced that it has removed four markets from its Distressed Markets List, including Bakersfield?Delano, California (Zip code 12540); Sacramento?Arden?Arcade? Roseville, California (40900); Dalton, Georgia (19140); and Hagerstown Martinsburg, Maryland?West Virginia (25100).

Currently, the entire state of Nevada and select markets in Arizona and Florida are the only names on PMI’s “distressed” list (there are no longer any California markets listed).

The company says it plans to add the entire states of Arizona and Florida to the list, effective July 1. Attached housing remains ineligible for mortgage insurance in the state of Florida.

Looking at the broader picture, PMI’s latest market forecast notes that leading indicators point to at least a modest pickup in home sales activity ahead.

“Home sales should increase in coming months, and we expect them to rise throughout the year (unless energy prices skyrocket),” PMI said in its report. “Gains in home sales should remain modest in 2011, however, given the large share of households with underwater mortgages, as well as extremely tight underwriting criteria.”

Still, as long as the job market continues to improve, PMI is predicting an increase in sales of existing homes of 7.7 percent to 5.29 million units this year.

With rising home sales, PMI says house prices should begin a seasonal pickup soon, with “modest gains” in the second half of 2011.

The company notes, though, that the large price declines already seen in the early part of the year are likely to yield small declines for all of 2011 for median existing home prices, still weighed down by distressed sales.

PMI expects the median price of previously owned homes to close the year 1.8 percent lower than it was at the end of 2010, but the company’s analysts are forecasting a 2.5 percent rise in the median price next year.

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