Insurers brand Valley depreciating real estate market

McALLEN - First-time homebuyers will have a harder time getting a loan after mortgage insurers flagged the Rio Grande Valley as a declining real estate market.

Radian Guaranty, one of the nation's largest mortgage insurers, said home values and sales in 51 ZIP codes in Hidalgo and Cameron counties are decreasing.

Even the area's wealthier neighborhoods in North McAllen and Sharyland made the list, which was published March 15 and includes nearly every major city in the United States.

In the Valley and elsewhere, mortgage insurers fear a decrease in home sales and building means markets are softening. Local lenders say the insurance companies are exacerbating the slowdown by making it harder to get loans.

Private mortgage insurance, which protects the lender in the event a borrower defaults, is required for most borrowers to get a home loan if the amount of the mortgage being sought is more than 80 percent of the property's appraised value.

However, in recent months insurers have raised their standards considerably, Martinez said.

"The standards for these companies are unreasonable," said Miguel Martinez, a broker with Duo Financial Services in McAllen. "I've had an increase in rejections and a decrease in loan originations."

Tighter insuring standards are forcing lenders to be more creative, said Valerie Cardenas, the chief lender for IBC Bank in McAllen.

"Obviously all of this is caused by the subprime market," Cardenas said, referring to the practice of lenders providing credit, typically with a high interest rate, to people with questionable or limited credit histories.

The practice has been blamed for the financial crisis that has arisen as many such borrowers have defaulted on their home loans been faced with foreclosure.

Many banks are trying to work around the tighter mortgage insurance restrictions by providing "80-10-10" and similar loans.

An "80-10-10" loan requires a 10 percent down payment and splits the loan in two - one in which the mortgage amount is 80 percent of the property's appraised value and another in which that "loan-to-value ratio" is 10 percent. The borrower then makes two mortgage payments but is able to avoid paying private mortgage insurance.

Local lenders say insurers are requiring larger down payments and minimum credit scores between 620 and 680. Those kinds of standards make borrowing difficult for the young and the poor in the Valley.

"It really hurts first-time borrowers who don't have equity built up in their homes," Martinez said.

With the number of foreclosures increasing nationwide, mortgage insurers have been hit hard, said Jim Gaines, a researcher with the Real Estate Center at Texas A&M University.

"They are saying that they don't want to insure any more loans," Gaines said.

However, tougher lending standards prompted by tighter insurance requirements have caused problems for the local home building and existing home sales markets. New home permits have dropped 26 percent in the last year and existing home sales decreased 11 percent in 2007.

Mortgage insurers say they haven't stopped insuring loans in certain markets, just that they have changed their guidelines to encourage more conservative lending.

"It's not that we won't give out insurance. There is no place in the country that we won't insure loans," said Katie Monfre, a spokeswoman for MGIC, the nation's largest mortgage insurance company. "We've just changed our underwriting standards."

MGIC has not listed Hidalgo or Cameron counties as a declining market.
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Kyle Arnold covers business, the economy and general assignments for The Monitor. You can reach him at (956) 683-4410.