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Thread: Speaking of mortgages...

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    Default Speaking of mortgages...

    You guys have such lengthy discussions! I have a 3 year ARM on my second mortgage. I can afford it now, but not if it goes up. Does anybody know if there is a way I could secure a rate so my payment doesn't skyrocket when the 3 years is up? I like my house. I would like to keep it.

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    Default Re: Speaking of mortgages...

    ^^^ yes, call your governor, congressman and senator ! Have them talk to Schwarzenegger !

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    Default Re: Speaking of mortgages...

    Quote Originally Posted by LuckyOne View Post
    You guys have such lengthy discussions! I have a 3 year ARM on my second mortgage. I can afford it now, but not if it goes up. Does anybody know if there is a way I could secure a rate so my payment doesn't skyrocket when the 3 years is up? I like my house. I would like to keep it.
    * When does your ARM expire? Many ARMs have a cap on the first year increase. Also, if your credit rating is good, your ARM will not really shoot that much.

    Also, not all ARMs are teaser ARMs.

    If the US goes into a recession, the rates may be cut again which may be a good chance to lock in a good 30-Yr Mortgage.

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    Default Re: Speaking of mortgages...

    Can you re-finance into a fixed rate? I am so glad I got fixed. Even though the rate on my second mortgage sucks, I am going to aggressively pay it down, and not have to worry about it adjusting at any point.

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    Default Re: Speaking of mortgages...

    Assuming that you have both a first and second mortgage, and further assuming that Las Vegas real estate market prices are continuing to decline, I assume that your current mortgages are 'underwater' ? If so, realistically there is no chance of refinancing into a lower fixed rate unless ...

    A. you have tens of thousands in cash available to cover the differential between your outstanding mortgage balances and the current market value of your house in order to get a re-fi mortgage that is 'above water' again

    B. the state of Nevada institutes a mortgage bailout plan

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    Default Re: Speaking of mortgages...

    Quote Originally Posted by Melonie View Post
    Assuming that you have both a first and second mortgage, and further assuming that Las Vegas real estate market prices are continuing to decline, I assume that your current mortgages are 'underwater' ? If so, realistically there is no chance of refinancing into a lower fixed rate unless ...

    A. you have tens of thousands in cash available to cover the differential between your outstanding mortgage balances and the current market value of your house in order to get a re-fi mortgage that is 'above water' again

    B. the state of Nevada institutes a mortgage bailout plan
    ^^^My current rate on the second is 9%. I wouldn't mind refinancing for a slightly higher rate as long as I knew it wasn't going to shoot up to 15% in 2 years when it adjusts. Is there any speculation of range the rate might be at the end of 2009?

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    Default Re: Speaking of mortgages...

    Quote Originally Posted by xanfiles1 View Post
    * When does your ARM expire? Many ARMs have a cap on the first year increase. Also, if your credit rating is good, your ARM will not really shoot that much.

    Also, not all ARMs are teaser ARMs.

    If the US goes into a recession, the rates may be cut again which may be a good chance to lock in a good 30-Yr Mortgage.
    It expires at the end of 2009. My credit score was close to 800 when I got the loan but I think it decreased since then. How do I know if my arm is a teaser arm?

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    Default Re: Speaking of mortgages...

    Quote Originally Posted by LuckyOne View Post
    ^^^My current rate on the second is 9%. I wouldn't mind refinancing for a slightly higher rate as long as I knew it wasn't going to shoot up to 15% in 2 years when it adjusts. Is there any speculation of range the rate might be at the end of 2009?
    The market actually thinks the interest rates will go down in the next two years. So, I would wait for both the real estate market to recover and interest rates to fall

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    Default Re: Speaking of mortgages...

    With so much mortgage debt owned by private parties via CDOs instead of banks these days, the whole money supply theory is being put to the test.

    Lately there has been a surprising disconnect between treasury rates & yields compared to mortgage interest rates.

    Previously it was "lets put a little more money out there in the banks hands to help with lending."

    These days it's "Holy fuck I got all these CDO's paid out of my bank account and where the fuck am I gonna get my money back from?" In other words, a lot of CDO owners can't walk up to the discount window and get a low interest loan to hopefully loan to some other sucker to make the money back on. (Unless of course, they partner up with B of A )

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    Default Re: Speaking of mortgages...

    ^^^See? I ask silly questions because I still need to learn all this!!! Alas, I am still a layperson not yet savvy to the financtial lingo.

    Quote Originally Posted by xanfiles1 View Post
    The market actually thinks the interest rates will go down in the next two years. So, I would wait for both the real estate market to recover and interest rates to fall
    This is the answer I've been looking for. So for now I can continue just doing the same thing: Nothing. Good deal! Thanks, you made my night!

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    Default Re: Speaking of mortgages...

    Quote:
    Originally Posted by xanfiles1 View Post
    The market actually thinks the interest rates will go down in the next two years. So, I would wait for both the real estate market to recover and interest rates to fall
    This is the answer I've been looking for. So for now I can continue just doing the same thing: Nothing. Good deal! Thanks, you made my night!
    Xan may be correct that interest rates on future fixed mortgages may go down a bit. But in order to qualify for such a mortgage under new regulatory guidlines re borrower's ability to repay, under Fannie and Freddie's new acceptance standards etc., actually getting an approval for a low fixed interest rate future mortgage / re-fi in the future probably means ...

    #1 - you have enough cash on hand to only borrow 80% of the future market value of the house at the time you apply for a mortgage / re-fi. This means that you'll have to compare the present/future assessed value of your house against the total outstanding balance of first plus second mortgages. Basically, the old trick of a primary mortgage for 80% of the house's equity plus a 'silent' second mortgage for the next 10-15-20% won't fly anymore ... and most of the lenders that specialized in writing second mortgages of this sort are in DEEP financial s#!t right now because their frequency of delinquencies is much higher.

    #2 - in order to gain approval for a low fixed interest rate mortgage in the future you are going to have to prove both your income and your assets. Where the income side is concerned, this probably means having 2-3 years of straight job work history. Relying on 'business income' i.e. dancing, even with 5 years worth of business tax returns to prove it, will never be considered the same thing as an employee paycheck by the mortgage lenders. The reason is because lenders understand that (in the case of a dancer) one broken ankle or the passage of a new anti-strip club law could cut your income severely resulting in a rapid default on your mortgage. On the asset side there isn't any similar 'prejudice' between straight employee jobs and business income jobs, but of course you do have to have the assets (i.e. bank balance, CD's, stock/bond portfolio, IRA etc.)

    Historically, in every major economic recession the same scenario takes place and there is no reason to think this time will be any different. The people who have been given loans that were least able to afford them will go into default first. Lenders raise creditworthiness standards to protect themselves, meaning that people with questionable ability to repay (i.e. subprime borrowers) will be turned down flat for new loans and re-fi's. Also meaning that would-be borrowers who lack the cash to buy themselves 20% equity will either be turned down or will be forced to pay a higher interest rate commeasure with a higher risk of default.

    With tighter creditworthiness / higher equity requirements in place, the banks then quickly find themselves trying to sell loans to a much smaller pool of prime borrowers who have high paying steady jobs plus enough cash or liquid assets to limit the loan to 80% of the market value of the property. At the same time the banks find themselves sitting on a pile of foreclosed properties from previous subprime mortgage failures which are costing the bank more money every month that they remain unsold. In order to sell these loans to prime borrowers and turn some of their foreclosed properties back into 'winners' again, the banks must lower interest rates ... which is the major reason that mortgage interest rates are likely to fall after the subprime housing crisis bottoms out next year. But for subprime borrowers, and even for otherwise prime borrowers who cannot document their incomes / assets, there is little or no chance that they will be allowed to participate in these lower interest rate loans.

    The only exceptions to this have been the result of gov' t intervention i.e. past HUD / bank regulator policies that REQUIRED Fannie / Freddie and banks to write a certain number of 'shaky' mortgages for would-be 'poor urban' homeowners. A new trend in gov't intervention seems to the the use of taxpayer money to guarantee new 'shaky' mortgages / re-fis for would-be 'poor urban' homeowners and/or people on the verge of foreclosure. As to what developments will actually take place along these lines has a lot more to do with 2008 election results than it does with financial theory.

    Also, dancers may want to keep in mind that the people who will ultimately wind up paying for these gov't loan guarantee subsidies to 'poor urban' homeowners via increased taxes are typically upper middle class guys with high incomes ... who are also the very guys who are typically responsible for providing the vast majority of dancers' incomes too ! Any gov't program that takes more money out of the pockets of upper middle class guys with high incomes via increasing their tax burden will also take money out of the pockets of dancers ! There is no free lunch.
    Last edited by Melonie; 11-25-2007 at 06:49 AM.

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    Default Re: Speaking of mortgages...

    I agree with Melonie here.

    I suggest pulling your credit report. www.annualcreditreport.com is a great site where you can get a free credit report from each of the credit reporting agencies once a year.

    I would also be shopping around for a place to get the new mortgage and or saving for a down payment to cover closing costs.

    Do the homework and research now! That way when you decide the time is right you can do it without alot of fuss.

    Personally I doubt mortgage rates will drop that much in the coming years. With credit worthiness being tighter and fewer people meeting criteria lenders will need to make up the profit difference somewhere.

    I would rather be in a 30yr Fixed at a slightly higher interest rate than confused trying to find a refi at the last minute.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Speaking of mortgages...

    Quote Originally Posted by Melonie View Post
    Xan may be correct that interest rates on future fixed mortgages may go down a bit. But in order to qualify for such a mortgage under new regulatory guidlines re borrower's ability to repay, under Fannie and Freddie's new acceptance standards etc., actually getting an approval for a low fixed interest rate future mortgage / re-fi in the future probably means ...

    #1 - you have enough cash on hand to only borrow 80% of the future market value of the house at the time you apply for a mortgage / re-fi. This means that you'll have to compare the present/future assessed value of your house against the total outstanding balance of first plus second mortgages. Basically, the old trick of a primary mortgage for 80% of the house's equity plus a 'silent' second mortgage for the next 10-15-20% won't fly anymore ... and most of the lenders that specialized in writing second mortgages of this sort are in DEEP financial s#!t right now because their frequency of delinquencies is much higher.

    #2 - in order to gain approval for a low fixed interest rate mortgage in the future you are going to have to prove both your income and your assets. Where the income side is concerned, this probably means having 2-3 years of straight job work history. Relying on 'business income' i.e. dancing, even with 5 years worth of business tax returns to prove it, will never be considered the same thing as an employee paycheck by the mortgage lenders. The reason is because lenders understand that (in the case of a dancer) one broken ankle or the passage of a new anti-strip club law could cut your income severely resulting in a rapid default on your mortgage. On the asset side there isn't any similar 'prejudice' between straight employee jobs and business income jobs, but of course you do have to have the assets (i.e. bank balance, CD's, stock/bond portfolio, IRA etc.)

    Historically, in every major economic recession the same scenario takes place and there is no reason to think this time will be any different. The people who have been given loans that were least able to afford them will go into default first. Lenders raise creditworthiness standards to protect themselves, meaning that people with questionable ability to repay (i.e. subprime borrowers) will be turned down flat for new loans and re-fi's. Also meaning that would-be borrowers who lack the cash to buy themselves 20% equity will either be turned down or will be forced to pay a higher interest rate commeasure with a higher risk of default.

    With tighter creditworthiness / higher equity requirements in place, the banks then quickly find themselves trying to sell loans to a much smaller pool of prime borrowers who have high paying steady jobs plus enough cash or liquid assets to limit the loan to 80% of the market value of the property. At the same time the banks find themselves sitting on a pile of foreclosed properties from previous subprime mortgage failures which are costing the bank more money every month that they remain unsold. In order to sell these loans to prime borrowers and turn some of their foreclosed properties back into 'winners' again, the banks must lower interest rates ... which is the major reason that mortgage interest rates are likely to fall after the subprime housing crisis bottoms out next year. But for subprime borrowers, and even for otherwise prime borrowers who cannot document their incomes / assets, there is little or no chance that they will be allowed to participate in these lower interest rate loans.

    The only exceptions to this have been the result of gov' t intervention i.e. past HUD / bank regulator policies that REQUIRED Fannie / Freddie and banks to write a certain number of 'shaky' mortgages for would-be 'poor urban' homeowners. A new trend in gov't intervention seems to the the use of taxpayer money to guarantee new 'shaky' mortgages / re-fis for would-be 'poor urban' homeowners and/or people on the verge of foreclosure. As to what developments will actually take place along these lines has a lot more to do with 2008 election results than it does with financial theory.

    Also, dancers may want to keep in mind that the people who will ultimately wind up paying for these gov't loan guarantee subsidies to 'poor urban' homeowners via increased taxes are typically upper middle class guys with high incomes ... who are also the very guys who are typically responsible for providing the vast majority of dancers' incomes too ! Any gov't program that takes more money out of the pockets of upper middle class guys with high incomes via increasing their tax burden will also take money out of the pockets of dancers ! There is no free lunch.
    You are making this way more complicated than it actually needs to be. You know there is such a thing as an Intelligence/Knowledge Curse :-).

    At this point, she still has Three years to sit back and allow the dust to settle. Nobody can get a true picture about this right now (including Bernanke).

    Remember the biggest advantage she has: she holds the option of refinancing any time within the next three years. If you price that option it will be worth a lot of money. It would be a wrong strategy for her to give away that option now when nobody will be willing to lend her money.
    But, Banks has to loosen their purse ultimately. At that point just lock in a good 7-1 ARM.

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    Default Re: Speaking of mortgages...

    ^^^ possibly !

    However, the closest historical experience with a real estate / banking crisis of similar magnitude happened 78 years ago, and it took from 1929 to 1946 before banks loosened their purse strings again.

    now it would appear that American borrowers will have to compete with foreign carry trade borrowers for future loans ...



    this is exactly the opposite phenomenon which occurred over the past 5 years, where carry traders borrowed Yen at extremely low interest rates and 'invested' that borrowed money in US dollar denominated investments - among them American mortgage and consumer loans at moderate interest rates. The reversal of this carry trade will mean that fewer and fewer dollars will be loaned inside the USA as opposed to outside. This also implies that the US dollar's exchange rate will stabilize, and that US dollar interest rates will rise, regardless of Fed intervention (since the Fed has 60 billion in reserves versus 500 billion plus for both Japan and China).
    Last edited by Melonie; 11-26-2007 at 05:17 AM.

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    Default Re: Speaking of mortgages...

    Quote Originally Posted by Melonie View Post
    ^^^ possibly !

    However, the closest historical experience with a real estate / banking crisis of similar magnitude happened 78 years ago, and it took from 1929 to 1946 before banks loosened their purse strings again.

    now it would appear that American borrowers will have to compete with foreign carry trade borrowers for future loans ...

    http://www.bloomberg.com/apps/news?p...Ha4&refer=home

    this is exactly the opposite phenomenon which occurred over the past 5 years, where carry traders borrowed Yen at extremely low interest rates and 'invested' that borrowed money in US dollar denominated investments - among them American mortgage and consumer loans at moderate interest rates. The reversal of this carry trade will mean that fewer and fewer dollars will be loaned inside the USA as opposed to outside. This also implies that the US dollar's exchange rate will stabilize, and that US dollar interest rates will rise, regardless of Fed intervention (since the Fed has 60 billion in reserves versus 500 billion plus for both Japan and China).
    78 Years ago, Fed didn't know how to react. Now, they have better tools. They made a lot of wrong decisions then.
    There is a lot to learn from history especially about Human Behaviour (result of millions of years of hard-wiring).
    But to apply history without deep analysis on systems which has gone deep changes is naive
    Here are the questions that you conveniently forget in your analysis

    78 Years ago, what was the corporate tax rate?
    78 Years ago, what was the GDP?
    78 Years ago, what was the personal Income Tax Rate?
    78 Years ago, how many US companies were global?
    78 Years ago, what was the diversity in Job creation?
    78 Years ago, how were the rest of the world doing?
    78 Years ago, what technologies were available?
    .
    .
    .
    .
    .
    .
    As you see there are thousands of variables to analyse and at least 20 Very important ones.

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    Default Re: Speaking of mortgages...

    78 Years ago, Fed didn't know how to react. Now, they have better tools. They made a lot of wrong decisions then.
    and the Fed is better today, and will make fewer wrong decisions today ????


    But to apply history without deep analysis on systems which has gone deep changes is naive
    Here are the questions that you conveniently forget in your analysis

    78 Years ago, what was the corporate tax rate?
    78 Years ago, what was the GDP?
    78 Years ago, what was the personal Income Tax Rate?
    78 Years ago, how many US companies were global?
    78 Years ago, what was the diversity in Job creation?
    78 Years ago, how were the rest of the world doing?
    78 Years ago, what technologies were available?
    obviously today we have an extremely interconnected global economy, whereas in the 30's it was mostly sovereign debts that were globally interconnected. However, this also contradicts your recurring point that sticking with a tried and true formula will work every time. It is arguable that, just like in the 30's, today the Fed is also prepared to 'fight the last war', which is also guaranteed to lead to wrong decisions now as it did back then ! Also, today, the Fed has far less 'ammunition' to 'fight the last war' with, at least in comparison to the central banks of China, Japan, Saudi etc.

    ~
    Last edited by Melonie; 11-26-2007 at 01:54 PM.

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    Default Re: Speaking of mortgages...

    78 years ago a new house cost $2,000 and there is no way LuckyOne, or myself, for that matter, would have gotten a mortgage loan for that amount.

    Systems also move faster today due to technology advances. I don't have a solution or retort here. Just know, its really not an apples:apples with the Depression.

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    Default Re: Speaking of mortgages...

    circling back to the present ...

    the US House has just passed the Mortgage Reform and Anti-Predatory Lending Act Bill. If the Senate follows suit and this bill becomes law, according to consumer groups the result will be to make new mortgage loans far harder to obtain for would-be borrowers with any sort of 'questionable' aspect. Such 'questionable' aspects would include non-verifiable and 'business' income, past history of bankruptcy or credit counseling, or a host of other possibilities that appear as 'questionable' entries on loan applications.

    (snip)Specifically, the bill will do the following:
    "Requires lenders to ensure a borrower's ability to repay. The bill establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. Lenders would have to determine that a borrower has a "reasonable ability to repay," based on income, credit history, indebtedness and other factors. For refinancing, the bill will require that all loans provide a net tangible benefit to the consumer.

    Prohibits certain unfair lending practices. The bill prohibits financial incentives for higher cost loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers for getting them in a loan with a higher interest rate the borrower qualified for. The bill limits the prepayment penalties charged to borrowers who wish to close out their loans, typically to refinance on more affordable terms."(snip)

    from

    Besides the new mandate that lenders must 'ensure a borrower's ability to repay', this bill will further limit the availability of future mortgages for another reason. The bill opens the door to both individual and class action lawsuits by borrowers against lenders. Until such lawsuits are settled, lenders are barred from eviction / foreclosure on delinquent homeowners, and are therefore barred from liquidating the property and recovering their collateral. In addition, the bill opens the door to punitive damage awards to borrowers that must be paid for by the lender.

    Thus if a lender chooses to approve a new loan to a borrower with 'questionable aspects', and if that borrower becomes delinquent on mortgage payments and decides to sue to avoid / postpone foreclosure, the lender not only stands to lose loan revenue and collateral recovery - but also faces significant new legal defense costs plus the possibility of paying punitive damage awards. This is particularly risky for lenders in regard to future 'subprime' loans that would normally involve higher costs to borrowers to compensate for higher risk of delinquency (in that such higher cost 'subprime' loans could easily be interpreted by courts as comprising unfair lending practices) as well as 'subprime' borrowers carrying a far higher risk of becoming delinquent (and resorting to lawsuits to avoid / postpone foreclosure.)

    I would also point out that one of the 'other factors' contributing to lender judgements of would-be 'borrowers' ability to repay' is potential job security (or lack thereof). Thus a dancer in her mid to late '20's at the time of application is extremely likely to meet with potential job security problems over the 30 year life of a mortgage loan (i.e. there are extremely few dancers still working in their mid to late 50's !).

    ~
    Last edited by Melonie; 11-27-2007 at 02:58 PM.

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    Default Re: Speaking of mortgages...

    With a close to 800 credit score you should have VERY little trouble re-financing into a fixed rate loan.

    It will a higher interest rate(9 or 10 % as opposed to say,the 6% I have right now)if you do low or no doc...but with a credit score that high it will be done.

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    Default Re: Speaking of mortgages...

    ^^^ assuming that your application beats the passage of the Mortgage Reform and Anti-Predatory lending act, anyhow !

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    Quote Originally Posted by Melonie View Post
    ^^^ assuming that your application beats the passage of the Mortgage Reform and Anti-Predatory lending act, anyhow !
    Well yeah..but any mortgage rep worth their salt will get around that. With a credit score that high..there a LOT more you can do as far as bargaining goes.

    Whenever I had a client with a credit score over 700...there was pretty much nothing I couldnt do for them. A cpl glitches like increased interest rate if it was a no doc...but still relatively easy

    hell..we JUST re-fi'd with credit scores lower then that and had little problem getting a 6% interest rate on a 30 yr fixed. Thankfully since we had a 2/28 that was just about to start adjusting!

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    Default Re: Speaking of mortgages...

    here it comes ... MGIC tightens criteria and raises premiums for insuring Alt-A mortgage loans. This will be a kick in the teeth to dancers and other self-employed persons. Keep in mind that even if a bank approves a new loan / refi, without insurance the bank isn't going to write that new loan unless you have cash / equity equal to a 20% down payment plus closing costs
    .



    (snip)"The nation's leading mortgage insurer, MGIC Investment Corp., says it will raise prices and limit its coverage of loans made without proof of income to try to rein in growing losses.

    The changes should help raise revenue and control payouts, which are expected to reach as much as $1.5 billion next year, said Curt Culver, chairman and chief executive of the Milwaukee-based company.

    MGIC also will limit its coverage of loans to people with low credit scores and raise premiums for some higher-risk loans, Culver told analysts Wednesday at a Friedman Billings Ramsey Capital Markets Investor Conference in New York.

    Mortgage insurers such as MGIG have been trying to limit their losses amid predictions of more people defaulting on their home loans.

    Home buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When borrowers miss payments, as more have been doing, the insurers pay out claims to lenders. If homes end up in foreclosure, both lenders and insurers also lose money.

    Payments also have risen as falling real estate prices have made it harder for homeowners in danger of default to sell their houses and pay off their loans.

    MGIC had paid $586 million in claims through the first part of this month and predicts it will pay $875 million for the full year. Payouts have been expected to rise to between $1.2 billion and $1.5 billion next year, and Culver said Wednesday he expects the payouts to reach the high-end of the spectrum. MGIC paid $611 million in losses in 2006.

    The industry's outlook is so bleak, MGIC has predicted it won't turn a profit for at least a year.

    One of the bigger changes proposed announced Wednesday will limit the insurance MGIC offers people who have Alt-A loans, which generally require only limited verification of income.

    MGIC will insure these loans only for people who are self-employed, the original market for them, Culver said. They have been used more recently by people who wanted to borrow more than they could really afford, resulting in losses for MGIC and other mortgage insurers, he said.

    "We always thought it was silly, a wage earner who could show you a paycheck would pay a higher interest rate not to show you their paycheck," he said.

    The company will raise prices on Alt-A loans, other loans worth 95 percent of a home's value and certain loans for people with low credit scores or small down payments. More specifics will be announced next week, Culver said.

    "We are increasing pricing to make money on these going forward, if we insure them at all," he said."(snip)

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