Magazine article American Banker

Mortgage Insurers Applaud Tightening of 80-10-10 Rules

Magazine article American Banker

Mortgage Insurers Applaud Tightening of 80-10-10 Rules

Article excerpt


Mortgage insurers have won a victory in the fight to protect their turf against incursions by lenders.

Their efforts to discourage the use of other forms of credit enhancement paid off last month, when the Federal Deposit Insurance Corp. joined two other banking regulators in approving a new rule that would make it more expensive for some lenders to hold so-called 80-10-10 mortgages.

In an 80-10-10, also known as a piggyback loan, the borrower makes a 10% down payment and takes out an 80% first mortgage and a 10% second mortgage with a shorter term and a higher rate.

The 80-10-10 loan has been touted to consumers as preferable to mortgage insurance because, unlike insurance premiums, interest payments on the second loan are tax-deductible.

It was also attractive to lenders because by holding the second mortgage, they would capture a payment stream that would normally have gone to mortgage insurers.

But the new rule, expected to go into effect April 1, would force national banks to hold almost twice as much risk-based capital to cover possible defaults on those loans as before. State-chartered banks already face the higher capital requirement.

Active originators of 80-10-10 loans include Chase Manhattan, Dime Bancorp, and World Savings and Loan Association (a subsidiary of Golden West Financial), according mortgage brokers. None of the three were available for comment.

The new rule would only increase the capital burden for portfolio lenders that hold both the 80% first lien and the 10% second. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.