Good news for home buyers with few funds to plunk down for a down payment or homeowners with little home equity. Mortgage insurers are making a comeback.

Mortgage Insurance Is Back! Refinancing a Mortgage with Less Equity

Thinking about buying property (remember, the home buyer tax credit is in its final days) or refinancing a home? You may be in luck. In the wake of the housing bust, private mortgage insurers stopped insuring loans except in the brightest real estate markets and for borrowers with the strongest credit package--but they are making a comeback.

Home retention efforts, including the US Treasury Department's Making Home Affordable, have cut foreclosures, sent insurers' stocks soaring, and caused them to loosen restrictions a bit.

PMI, Not to Be Confused with MIP or MPI

The abbreviations come thick and fast when you refinance a mortgage or buy a home. MI means mortgage insurance. It's the term used in the lending industry for non-government mortgage insurance. PMI is the name of just one of many mortgage insurers.

MIP, or mortgage insurance premium, is the name of FHA's mortgage insurance. Sometimes the part you pay upfront is called UFMIP, to differentiate it from the monthly mortgage insurance you pay on an FHA loan.

Finally, MPI, or mortgage payment insurance, is not required by lenders but may be sold to borrowers. This kind of insurance is supposed to make your payment for you in the event of illness, disability, or unemployment. These policies may be sold by insurance companies or even lenders (for instance, Bank of America makes these available to its borrowers).

Mortgage Insurers Are Back

Here's an excerpt from a letter from mortgage insurer Genworth Financial to lenders. The firm is loosening its guidelines starting April 12, 2010:

As the mortgage market continues to stabilize, Genworth's strong reliance on prudent underwriting standards
and processes will allow us to continue expanding our underwriting guidelines. We are introducing new
definitions for Retail and Non-Retail Originations. These new definitions will allow us to broaden our
guidelines in all markets, including Arizona, California, Florida, Michigan, and Nevada. Our goal is to work
with you, our lender partners, to prudently insure more loans for qualified borrowers and expand
home ownership opportunities throughout the nation.

Yes, even Arizona, California, Michigan, Florida, and Nevada are no longer considered off-limits. This really is cause for celebration: the easier it is to finance property in these areas, the better and faster the market's recovery. Here are the highlights:

• The policy for declining and distressed real estate markets (generally meaning that almost no one can get insurance in those locations) will be abolished.
• It will be possible to insure a mortgage on a condominium to a 95% loan-to-value (LTV).
• Co-ops will be insurable to 95%.
• Two-unit properties (duplexes) will now be eligible for insurance, to an LTV of 90%.
• Manufactured housing will now be acceptable for mortgage insurance, to an LTV of 85%.

Credit Guidelines Have Been Relaxed

Other welcome changes are the lowering of minimum credit scores to secure mortgage insurance. instead of needing a 720 or 740 credit score to qualify for mortgage insurance, borrowers with at least three trade lines encompassing a period of at least 12 months will need to following scores:

• 680 for a 95% loan on a primary residence (purchase mortgage or rate-and-term refinance);
• 740 for a 90% loan on a primary residence with a loan exceeding $417,000;
• 700 for a cash-out refinance of up to 85% (many MI companies refused to insure cash-out refinances at all before now);
• 680 for a 95% mortgage on a condominium (off-limits until now for many insurers);
• 680 for a 90% mortgage on a duplex;
• 680 for an 85% manufactured housing loan; and
• 720 for a purchase or rate-and-term mortgage refinance on a second home.

In addition, Freddie Mac has announced the approval of Essent Guaranty to write mortgage insurance policies, as well as designated affiliates of flagship Freddie Mac-approved mortgage insurers Republic Mortgage Insurance Corporation (RMIC) and PMI Assurance Co. (PMAC). This means, according to Freddie Mac, increased availability of mortgage insurance for qualified borrowers with limited down payment resources.

Extra Benefits of Mortgage Insurance

Many mortgage insurers are offering extra value to those who have to purchase this necessary evil: You may be able to get a mortgage insurance discount if you take eight hours of qualified classroom home buyer education. Research shows that graduates of classroom home buyer education conducted by a non-profit agency perform better than other borrowers with similar loans.

You may also be able to get job loss protection at no extra charge from some mortgage insurers; ask about this benefit when refinancing a mortgage or buying a new home. Mortgage insurers also actively work with borrowers and mortgage lenders to come up with loan workout programs for homeowners experiencing financial hardships. It is in their best interest to help you stay in your home, and they can be powerful allies and help you negotiate with your lender.