Magazine article American Banker

With Change in Illinois Law, MGIC to Insure No-Money-Down Loans

Magazine article American Banker

With Change in Illinois Law, MGIC to Insure No-Money-Down Loans

Article excerpt

Illinois has made it legal to fully insure no-down-payment mortgages -- lifting the last major regulatory barrier to doing so. The state's Department of Insurance on May 4 issued an "emergency amendment" raising to 100% from 97% the maximum loan-to-value ratio of a mortgage that a private mortgage insurer licensed in Illinois may insure. The day the department issued its amendment, the largest mortgage insurer, Mortgage Guaranty Insurance Corp. of Milwaukee, said it would begin to insure loans for 100% of a home's value. MGIC waited for the green light from Illinois because the state has what amounts to extraterritorial authority. If an insurer does something in another state that is illegal in Illinois, it can be barred from selling insurance there. New York and California have similar powers; New York legalized 100% loan-to-value insurance a year ago, and California did the same in January. Previously, companies had to find creative ways to offer insurance for zero-down loans. Some companies offered the coverage through subsidiaries; others found third parties to take some of the risk. Mortgage insurance executives say these programs will make homeownership feasible for people who don't have enough savings to put 3% down. Some observers worry about the extra risk they are taking on. "I'm always suspicious about someone who's got no equity in their home at all," said David M. Graifman, an analyst at Keefe, Bruyette & Woods Inc. "They have no incentive to stay there any more than a renter does. …

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