Valley Flagged

McALLEN - It will be more difficult for first-time homebuyers to get a loan because mortgage insurers have flagged the Rio Grande Valley as a declining real estate market.

Radian Guaranty, one of the nation's largest mortgage insurers, said home values and sales in 51 ZIP codes in Hidalgo and Cameron counties are decreasing.

All four Harlingen ZIP codes as well as those in Brownsville, Port Isabel and Rancho Viejo made the list, which was published last Saturday and includes nearly every major city in the United States.

Other local ZIP codes on the list are La Feria, Combes, San Benito, Los Fresnos and Rio Hondo.

In the Valley and elsewhere, mortgage insurers fear that a decrease in home sales and building means markets are softening. Local lenders say the insurance companies are exacerbating the home slowdown by making it harder to give loans.

Private mortgage insurance, which pays the lender in the event of a foreclosure, is required for most borrowers to get a home loan unless they have a 20 percent down payment. However, in recent months insurers have raised their standards considerably, said Miguel Martinez, a broker at Duo Financial Services in McAllen.

"The standards for these companies are unreasonable," Martinez said. "I've had an increase in rejections and a decrease in loan originations."

Tighter insuring standards are forcing lenders to be more creative, said Valerie Cardenas, the chief lender for IBC Bank in McAllen.
Many banks are doing "80-10-10" and similar loans. An "80-10-10" loan requires a 10 percent down payment and splits the loans in two, one for 80 percent and another for 10 to avoid insurance restrictions. The borrower will then make two payments.

"Obviously all of this is caused by the subprime market," Cardenas said.

Local lenders say insurers are requiring larger down payments and minimum credit scores between 620 and 680. Those kinds of standards make lending difficult in the young and poor Rio Grande Valley.

"It really hurts first-time borrowers who don't have equity built up in their homes," Martinez said.

With the number of foreclosures increasing nationwide, mortgage insurers have been hit hard, said Jim Gaines, a real estate researcher with the Texas Real Estate Center at Texas A&M University.

"They are saying that they don't want to insure any more loans," Gaines said.

However, tighter lending standards led by insuring requirements have caused problems for the local home building and existing home sales markets. New home permits have dropped 26 percent in the last year and existing home sales decreased 11 percent in 2007.

Mortgage insurers say they haven't stopped insuring markets, just changed their guidelines to encourage more conservative lending.

"It's not that we won't give out insurance. There is no place in the country that we won't give out loans," said Katie Monfre, a spokeswoman for MGIC, the nation's largest mortgage insurance company. "We've just changed our underwriting standards."

MGIC has not listed Hidalgo or Cameron Counties as a declining market.