Insurers Push Alternative to No-Insurance Loans

To compete against "80/10/10" loans, which don't require mortgage insurance, mortgage insurers are aggressively marketing a new kind of single-premium policy.

The new policies let borrowers make a single payment up front to insure home loans with 10% down payments.

With an 80/10/10, borrowers avoid mortgage insurance but must take out two loans-usually one for 80% of the home's value and the second for 10%. The second is for a shorter term and at a higher rate.

MGIC Investment Corp., the nation's largest mortgage insurer, is among those offering a single-premium product. Chief operating officer Curt Culver said it would free borrowers of monthly premiums without making them pay closing costs on two loans and take out two liens.

But monthly payments would probably be slightly higher than for 80/10/10 loans, he said.

Not so on the single-premium product that GE Capital Mortgage Insurance, the nation's second-largest lender, introduced this week. GE said monthly payments on loans this policy would insure would be less than on a typical 80/10/10, because the premium would be lower than on MGIC's policy.

The premium is refundable, said Jim Lynn, a member of GE's product development group. If the borrower refinanced after at least four years, GE would refund 48% of the premium. Smaller refunds would be made if the loan were repaid later.

GE is using a premium that matches what other insurers are charging for their nonrefundable single-premium products, Mr. Lynn said.

Mr. Culver said MGIC does not plan to offer a refundable product. But United Guaranty Residential Insurance Co. has lowered the rate on its refundable product about 25% to match GE's.

Furthermore, with United Guaranty's product a borrower is eligible for a 20% refund if the first 30 monthly mortgage payments are made on time.

Some observers were worried that United Guaranty's policy could spark a round of rate cuts in the notoriously copycat mortgage insurance industry, hurting profitability.

But Steven Schwartz, an analyst with ABN Amro/Chicago Corp., said single-premium policies represent a small part of mortgage insurers' business.

Andrew May, vice president of corporate development for United Guaranty, said that as much as 20% of its business could come from this product within a year, versus only about 1% now.

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