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Mortgage insurers are no substitute for 20% down: Institutional Risk Analytics

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Allowing private mortgage insurance to function as a substitute for federal guarantees on loans would be a huge mistake, according to analysts working for Institutional Risk Analytics. In the firm's latest Institutional Risk Analyst report, IRA researchers say mortgage insurers are vying for a role in the Dodd-Frank world, and giving them what they want could be dangerous. "During our several trips to Washington last week, we learned a great deal more about how and why the private mortgage insurance providers have been spreading more than a little money around town to protect their evil role in the U.S. housing sector," IRA analysts asserted in their report. The analysts added, "The first goal of the mortgage insurers seems to be creating a safe harbor whereby mortgage insurers can play a role in the prime mortgage market once the Fed defines a qualified residential mortgage as required by Dodd-Frank. Once that is achieved, the next goal is said to be creating a safe harbor for MIs in the qualified mortgage definition to be set by the Consumer Financial Protection Bureau." The analysts believe securing a role for mortgage insurers within the definition of QRM could lead to a bizarre "Twilight Zone" where the mortgage market is transported back to a time when key players are "providing credit to deadbeats again," the report says. "To us, any loans that fit the QRM designation should have 20% down payments, not second liens, mortgage insurance or other structural "enhancements" that ultimately undermine credit quality, the report concluded. Write to Kerri Panchuk.

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