THOMAS R. GLEASON
‘More purchasing power’
Massachusetts’ affording housing bank, MassHousing, recently announced the offering of new mortgage insurance rates that are the lowest mortgage insurance rates in the country for low-income homebuyers who use one of MassHousing’s home mortgage programs.
MassHousing borrowers who earn less than 80 percent of the Housing and Urban Development area median household income (which is $64,600 in the Boston area) are now eligible for a 20 percent discount on mortgage insurance costs. The discount will average about $25 per month or $300 per year on an $180,000 mortgage, which is the average mortgage amount for the majority of MassHousing’s current borrowers.
“By reducing the amount of mortgage insurance a homebuyer has to pay and applying that money toward their monthly mortgage payment, the homebuyer actually gains more purchasing power,” said MassHousing Executive Director Thomas R. Gleason. “MassHousing is always doing what it can to help make it easier for low-income homebuyers to realize the dream of homeownership.”
For example, if the $25 monthly savings from the mortgage insurance discount is added to the monthly mortgage payment, then the homebuyer is able to carry a mortgage that is $4,750 more than he would be able to qualify for without the discount. That equals a 2.6 percent increase in the borrower’s home purchasing power.
Gleason said MassHousing has continued to test the mortgage waters from decades ago, when the norm for purchasing a home was a 10 percent down payment. Over time, 5 percent was acceptable, and then eventually the industry introduced zero-point financing and mortgage programs with no money down.
So how can a financing agency afford to lower the mortgage insurance rates for first-time homebuyers already putting down low-down payment costs? Gleason reiterated that it’s all about purchasing power.
MassHousing started making loans to first-time homebuyers in 1982 and, according to Gleason, “We’ve put 50,000 families in their first homes.”
During an average year, MassHousing issues 2,000 loans to first-time homebuyers, which averages out to between $150 million and $220 million.
“Our track record has encouraged other lenders to be more aggressive and loan to those who don’t have pristine credit or are lower-income,” said Gleason. “In turn, lower interest rates and low down payments and reduced transaction costs make it easier for a first-time homebuyer to get into their home.”
According to Gleason, MassHousing has “pushed the market and we’re knocking down the barrier to homeownership. We do about 2,000 loans a year and about 80 percent go to first-time, low-down-payment homebuyers.”
“Rather than make more money, we are passing the savings along to the consumer and that reduction allows them more purchasing power when they buy their home. It’s very expensive to buy a home in Massachusetts – there is no silver bullet, no one solution, that works for everybody,” added Gleason. “When it’s focused on people making 80 percent or less than the median income, that purchasing power of $5,000 can make a difference in getting them into their first time. When you add it with the no-down-payment or no-points mortgage, it’s easier to get into that home.”
‘Great News’
Private mortgage insurance, often referred to as PMI, is insurance that protects the lender against loss if the borrower defaults on his or her loan. PMI is required when the borrower puts less than 20 percent down and is no longer needed when the borrower has attained 20 percent equity in his home.
According to Gleason, it typically takes the average borrower who puts 3 percent down (which is required for a MassHousing MassAdvantage mortgage loan) approximately 15 years to obtain 20 percent equity in the home and no longer need PMI.
MassHousing’s Mortgage Insurance Fund was formed in 1988 to address shortfalls in mortgage insurance availability. Until that year, Gleason said MassHousing operated as any other mortgage financing company. Mortgage insurers would provide insurance for the loans made then in 1988, and private mortgage insurance companies were unwilling to take on the risk of insuring the loan of a borrower who only put down 5 percent. Since that time, MassHousing and its Mortgage Insurance Fund have successfully piloted a number of new and innovative mortgage finance products benefiting low- and moderate-income homebuyers.
“The only lending we do is for first-time homebuyers and a majority [of loans] are for those with low down payments – under 5 or 10 percent – so the vast majority of lenders have to have mortgage insurance,” said Gleason.
Gleason said it was only a few years ago that MassHousing started to provide mortgage insurance for conventional mortgage loans and focused on putting technology “to work on the mortgage market in Massachusetts and taking advantage of better financial arrangements in the marketplace to reduce mortgage insurance in the marketplace. We’ve been successful in getting that to the consumer.”
Massachusetts is one of only six states that have a public mortgage insurance fund. Because the MassHousing Mortgage Insurance Fund does not have the expectations of shareholders, MassHousing is able to reinvest profits from mortgage insurance operations into future insurance capacity.
“This mortgage insurance discount program is great news and will really make a difference when it comes to buying a home in today’s real estate market,” said Gleason.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, added, “MassHousing and their Mortgage Insurance Fund has been the standard and authority in providing the appropriate insurance coverage to a whole community of consumers who might otherwise not have achieved the dream of homeownership. This aggressive and innovative product is just one more in a long line of products servicing the needs of the low- and moderate-income homebuyer.”
Melanie Nayer may be reached at mnayer@thewarrengroup.com.
