One of the last mortgage programs to be affected by the problems in housing is the State Housing program. It really does not matter which state we are discussing. The vast majority of the time, Private Mortgage Insurance [PMI] is required when using one. The exceptions occur when the buyer has 20% down, uses FHA to insure the loan, VA to guarantee the loan or USDA to guarantee the loan. State Housing agencies get their funding from bonding agencies when tax-exempt bonds are issued. Certain terms must be followed such as income requirements, house price limits, etc. PMI companies have been very generous in working with state housing agencies by offering lower than market insurance rates, allowing financed premiums for 100% loan-to-value transactions, and in many cases offering to underwrite loan files.
One by one, programs were affected by the large losses sustained by the PMI companies. Program types were examined for pricing and eligibility. Borrowers were examined for credit worthiness. Losses were studied to find common issues which may have led to poor underwriting policies. In many cases, the clock has been wound back. Cash out refinances used to be limited to 75% loan-to-value in the 'old days'. PMI on such a transaction was not needed. Gradually, the loan-to-value threshold was raised up to 90%. Now, a borrower will not be able to get PMI on a cash out transaction that exceeds 80%. [This leaves VA & FHA as the only real alternatives in this type of loan.]
Pricing adjustments based on credit scores for purchases with respect to PMI in many cases means the total housing payment will become very uncomfortable for buyers. Especially when coupled with pricing adjustments imposed by the GSEs--Fannie Mae & Freddie Mac. Although the PMI rates are less for State Housing agencies, the total payment and limited loan to value ceilings put in place by the PMI companies mean that exploring other types of mortgage financing such as FHA, VA & USDA make a lot more sense. A lender without all of these options is not as able to serve the homebuyer because it lacks what may be the best product for the consumer. And if a loan officer is more interested in himself than in you, chances are that you will not be told about these alternatives if the loan officer does not have a full menu of loan products.