It's not a matter of "must" or not. It's a choice.boyohboy wrote: ↑Why must monoline lenders insure the loans while banks can do either way?valuemortgage wrote: ↑ The majority of monoline lenders insure all their mortgages, while banks dont always do that to low ratio mortgages. Technically speaking, lenders could still offer 30y amortization and qualify on the contract rate (as opposed to the stress test rate) those conventional deals, but in real life, monoline lenders simply cant do that as they must insure those mortgages. This could potentially create a scenario where banks could benefit from the new regulations, as a large portion of the market could now have very little competition, if indeed monoline lenders cant compete. For instance, monoline lenders could still keep operating just like they do now, but they would always have to enforce those rules (max 25y amortization, qualifying on the 4.64% rate, etc) while clients that needed/wanted 30y amortization and a lower qualifying rate could still get those mortgages with the banks, if the banks were willing to keep those loans in their books and uninsured.
As mentioned before, it is too early to see the full effect these new rules will have. At this point, it is all speculation.
They must meet regulations though (for capital ratios, etc).
So a bank with billions of customer deposits can keep a mortgage in-house funding it internally, while a non-bank without access to funds wants to originate the mortgage and then package them off and resell them (MBS = mortgage-backed securities).
If those mortgages are insured they are a safe investment and easy to sell, if they are uninsured who wants them? LOL