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Anti-Predatory Lending

Predatory mortgage lending typically includes excessive or unnecessary loan fees, and often targets emerging market communities including minorities, lower-income families, and people with nontraditional, weak or blemished credit records. This practice drains wealth from families and communities, destroys the benefits of homeownership and often leads to foreclosure.

As a mortgage insurer, MGIC usually assumes the first risk of loss when it agrees to insure a loan. Not only are predatory mortgages bad for business, but they interfere with MGIC's corporate mission to facilitate homeownership and equity growth. The following policy statement attempts to identify criteria that might make a loan both unfair and risky.

MGIC's Anti-Predatory Lending Policy

MGIC generally will not be underwriting or performing audit reviews to evaluate compliance with this policy statement. A number of states have enacted laws prohibiting certain predatory lending practices, and we presume that loans made by lenders and submitted to MGIC for insurance will comply with those laws. However, if it comes to MGIC's attention that a lender is engaged in practices that violate either those laws or the eligibility standards below, additional procedures may be required to confirm compliance with those laws and standards. MGIC recognizes that although it prefers not to insure loans that do not meet its eligibility standards, some of those loans inadvertently might be submitted to, and approved by, MGIC or approved by policyholders with delegated underwriting authority, particularly since MGIC usually does not have access to information in the loan file that would indicate compliance.

MGIC will treat loans with the following characteristics as not meeting its eligibility standards:

  • High-cost loans – Loans with an interest rate 8% greater than the Treasury of comparable maturity (as measured on the 15th business day of the month prior to receipt of the loan application).
  • Loans with excessive points and fees – Loans with total points and fees exceeding the greater of $465 or 8% of total loan amount, with the definition of "points and fees" following the Home Ownership and Equity Protection Act of 1994 and its implementing regulation.
  • Flipping – High-cost loans with a history of repetitive refinances (more than 2 in 24 months), unless borrower benefit is demonstrated. Borrower benefit will be presumed where the borrower receives cash, a lower interest rate or a lower monthly payment as a result of the refinance.
  • Borrower's ability to repay – Lenders should reasonably ensure a borrower's ability to make mortgage payments, especially for products that have unique or complex features, such as negative amortization or balloon payments.
  • Single-premium credit life insurance policies for "high-cost" borrowers without alternative payment options – Lenders should offer borrowers the option of paying for such insurance on a periodic basis. "Credit life" insurance includes unemployment, disability and mortgage life insurance coverage usually sold as part of the mortgage loan transaction and for which borrowers are charged a premium.
  • Prepayment penalties without borrower benefit – If a loan has a prepayment penalty feature, it should be offset by a rate or fee reduction, be fully disclosed, and not be charged when the mortgage debt is accelerated as the result of the borrower's default.

If any law applicable to a loan prohibits any of the practices that also would violate any of these eligibility standards, the lender must not submit that loan to MGIC for insurance, because it is a loan that MGIC will not insure.

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