United Wholesale Mortgage (UWM) rolled out a new purchase product that will waive mortgage insurance payments if a borrower opts for a 10.01%-or-more down payment. But borrowers would be wise to note that they’ll get hit with higher interest rates.
The product, dubbed “MI Buster,” will be available for conventional purchase loans starting at $200,000, as well as for high-balance loans with a loan-to-value ratio between 80.01% and 89.99%, according to a press release issued by the Pontiac, Michigan-based lender on Wednesday.
Typically, if a borrower opts for a conventional loan and puts down less than 20%, they must pay for mortgage insurance until they accumulate 20% of equity in their home, a condition generally set so the loan can be sold on the secondary market. Once that happens, mortgage insurance is usually waived. The wholesale lender’s new product allows a borrower to forgo this step.
UWM, which will not be selling loans with “MI Buster” to Fannie Mae or Freddie Mac and will retain servicing on them, said in a statement that this product “provides a competitive advantage for independent mortgage brokers, allowing them to save their borrowers money on their monthly mortgage payments.”
“With mortgage rates on the rise, the elimination of MI can also help borrowers, including first-time homebuyers, get more home for their money, along with a more manageable monthly payment,” the top wholesale lender said in a statement.
However, UWM’s “MI Buster” program raises questions about whether the interest rate for this product will be significantly higher than that of a conventional 30-year-mortgage.
Alex Naumovych, a retail loan officer at Draper & Kramer Mortgage Corporation, said that the product roll-out appears to be a marketing move by UWM to gin up purchase business.
“Customers hear that you don’t have to pay MI and they get excited, but they don’t realize that they will have a higher mortgage payment for the life of the loan,” said Naumovych. “It’s very likely that [this product] will have a higher interest and maybe it will not be half a percent higher, because people already put in 10%, but it may be at least a quarter percent higher.”
In response to inquiries from HousingWire, a UWM spokesperson noted that “interest rates could be higher compared to a program with MI, however, the all-in rate/payment is lower in almost all situations, compared to [borrower paid mortgage insurance] or [lender paid mortgage insurance].”
Naumovych remarked that by offering this product, the lender is not necessarily going out on a limb since the market is appreciating and properties will continue going up in value. “Also, they’re requiring a 10% down payment, so it is unlikely for a person to walk away from the house,” he noted.
Earlier in November, UWM also introduced jumbo ARMs for its broker partners, touting that their prime jumbo ARMS allow brokers to offer “competitive pricing” on five-, seven- and 10-year adjustable-rate mortgages.
…but they don’t realize that they will have a higher mortgage payment for the life of the loan,” said Naumovych.
Wouldn’t it make more sense to get a standard conventional with MI and then when you reach the 20% mark dump the MI? After all, with 10% down, it would only take about 2 years to reach that mark in today’s climate, worse case 3-4.