Mortgage insurance can significantly increase the total cost of using a loan to purchase a home. In many cases, it equals hundreds of dollars a month, and the higher the loan (generally speaking), the higher your mortgage insurance price will be.
To help reduce costs, Fannie Mae is testing what they call an “enterprise-paid mortgage insurance” program. Often referred to as “EPMI,” this program allows borrower to secure an affordable loan and actually have Fannie Mae, not the borrower or the lender, pay for the insurance.
Fannie Mae Enterprise-Paid Mortgage Insurance
The Role of Insurance in a Mortgage Loan
Mortgage insurance is designed to protect the lender. If a borrower is unable to make payments on a loan, the insurance policy compensates the lending institution, providing a financial safety net for borrowers. It might seem like this is only good for the lender, but by having insurance, they are able decrease risk and thereby offer more loans to a wider range of borrowers. The result is more people are able to qualify for a mortgage and become homeowners.
Mortgage insurance is often paid by the borrower. (Yes, there is some irony in paying a policy that protects the lender, but, again, it increases approval chances.) However, in some cases the mortgage can be paid by the lender. With this innovative step, which is being tested as a pilot program, the insurance can now be covered by Fannie Mae, which could reduce cost and further increase the chances of mortgage approval.
What is EPMI?
EPMI is an alternative to typical mortgage insurance. This option allows lenders to deliver a loan with a loan-to-value ratio of 80% or more without requiring the borrower to pay for additional mortgage insurance. Currently being launched as a pilot program, this creates more affordable and more accessible borrowing opportunities for a wide range of borrowers, and could be the difference in your mortgage application.
Loans delivered under this program are covered under a forward-insurance arrangement, which is secured by Fannie Mae from an approved insurance provider. This provider can be a qualified insurer or a traditional mortgage insurer. Either way, the provider needs to be properly approved by Fannie Mae to provide coverage on the program.
For borrowers and lenders alike, this program is set to create a streamlined, efficient mortgage-application process. Fannie Mae is responsible for acquiring the insurance, filing the claims, and performing the monthly reporting, which take a significant amount of work away from the lender, making the application process more efficient for borrowers.
For loan eligibility, there is a chance that more people will be able to qualify. This is because lenders only have to seek eligibility through Fannie Mae, not Fannie Mae and mortgage insurance guidelines, which can have additional restrictions.
Servicing can also be easier and more efficient, as participating servicers have to look only at one set of guidelines for factors such as loss mitigation, liquidation of assets, and related approvals.
EPMI Impact on Borrowers
When it comes to borrowers, there are a few benefits that will be noticed. In many cases, EPMI may create a lower initial monthly payment compared to mortgage insurance paid by the lender or borrower. The price, however, will depend on many factors, including the product offering and the specific situation for the borrower.
One important factor for this loan program is that the cost of the EPMI is worked into the interest rate, which cannot be changed as long as the loan is active. This is different from borrower-paid mortgage insurance, which allows the borrower to lower their total mortgage payment by eliminating the insurance after a certain equity percentage is reached.
Highlights of the New Program
This pilot program has a few highlights that should be noted by anyone seeking an affordable mortgage.
No Insurance Paid by Borrower
As the overarching factor in this program, there is absolutely no insurance that needs to be paid by the borrower, which significantly reduces the total cost of the mortgage loan. There are, however, interest-rate factors that should be calculated with the help of a mortgage professional.
No Mortgage Insurance Certificate
Prior to funding the loan, there will be no mortgage certificate pulled by the lender. Instead, insurance is purchased after the loan is closed by Fannie Mae, which helps to speed the overall process.
No Need to Work with a Mortgage Insurance Company
By not having to work with an insurance company, you remove the potential limitations and restrictions that could be imposed on the loan. Also, there is no need for underwriting by a mortgage insurance company if the loan reaches higher levels of loan-to-value.
No Increases Due to Low Credit Score
If you have a low FICO score, it may be beneficial to use this program, as you can get the funding you need for a purchase with affordable terms, and the cost won’t be increased due to a high FICO score. This is one of the benefits that could make this program increasingly popular among homebuyers.
No Increase Due to High Loan-to-Value Ratio
Lenders at all levels like to see a moderate, manageable loan-to-value ratio, as it creates less risk when they are lending hundreds of thousands of dollars. For this reason, interest can be higher if your loan-to-value is above a certain percentage. This is not the case with this loan program, however. Costs are kept at a manageable rate even if LTV is high.
Get More Information for Fannie Mae Enterprise-Paid Mortgage Insurance
There are many details with this loan program; to fully understand enterprise-paid mortgage insurance, you need to speak with a knowledgable professional. We are proud to offer this pilot program, and we would love to help you take advantage of this wonderful new borrowing option.
Whether you want to lower monthly costs or need to increase your chances of approval due to a low FICO score, this EPMI program may be right for you!