AIG Changes MI Eligibility Rules; Will Exclude Majority of Subprime Borrowers

As concern that American International Group. Inc. may have greater exposure to the U.S. subprime market than originally disclosed has mounted, sending shares to a 2 1/2 year low this past week, it appears the company’s mortgage insurance segment will change its underwriting guidelines to exclude offering MI to subprime borrowers. Here is a copy of mortgage insurance pricing and eligibility changes that will go into effect on December 3 at AIG United Guaranty. From the update, it appears that anyone with a FICO below 575 will be wholly ineligible for mortgage insurance, while anyone under 620 FICO won’t be eligible for mortgage insurance unless they put up at least 5 percent in a down payment. I’ve checked the rate sheets of other mortgage insurers and don’t see anything similar in terms of existing or updated eligibility; most still show the availability of MI for borrowers under 620 at all LTV amounts. An HW reader who sent me the link said the changes at AIG UG “are really going to affect qualifying for many buyers.” At the very least, it seems to confirm to me AIG’s desire to limit its subprime exposure going forward; it also suggests that the entire mortgage insurance sector may be reconsidering its approach to subprime mortgages.