MILWAUKEE, June 13 /PRNewswire/ -- Borrowers who refinanced home mortgages during the current refinancing boom raised their first mortgage loan-to-value (LTV) ratio by an average of 6%, their first mortgage balance by $41,000, and their interest rate an average of 0.60%, according to the MGIC Capital Markets Group.

"These numbers validate what lenders have been telling us all year -- that an increasing number of today's refinance borrowers are consolidating debt or tapping home equity, as opposed to solely pursuing a rate-and-term refinance," said Michael Zimmerman, Vice President - Mortgage Banking Strategies at Mortgage Guaranty Insurance Corporation (MGIC). "Though many borrowers may actually be taking on a higher-rate first mortgage, they most likely are lowering their overall monthly debt payments and long-term interest costs by using their equity to pay off higher-cost credit cards, installment loans, and second and third mortgages."

Zimmerman estimates that as many as five in 10 borrowers who are refinancing today are motivated by debt consolidation. This compares to the refinancing waves of 1998-99 and 1992-93 when roughly eight in 10 borrowers who refinanced did so to lower their first mortgage interest rate and/or change amortization terms.

"We've seen a gradual shift in consumer attitudes toward mortgage debt since the beginning of the 1992-93 refinancing boom," Zimmerman said. "Today's consumer is more apt to view the home mortgage as a source of cash and financial flexibility. Today's consumer is more aware of their options in managing family debts and lowering interest costs."

Mark Marple, Vice President - Mortgage Banking Strategies at MGIC, said the fact that the average interest rate of refinancing borrowers is rising is another indication of a strong debt consolidation motive.

"Many borrowers are willing to accept a higher first mortgage rate when consolidating debt because they are eliminating double-digit interest rates they had been paying on credit card and second mortgage debt," said Marple. "Furthermore, mortgage interest is tax deductible, whereas consumer credit card and installment loan interest expenses are not tax deductible. This is certainly a factor in many borrowers' recent decision to consolidate debt under a higher rate first mortgage."

The MGIC Capital Markets Group analysis focused on loans that were prepaid and retained by their current servicer in the fourth quarter of 2000. The analysis was done as part of the MGIC Capital Markets Group's ongoing study of trends in mortgage refinancing and customer retention. Earlier this year, the MGIC Capital Markets Group reported that in times of heavy refinancing, roughly three-in-four borrowers who refinance do so with a lender other than their current servicer.

"The fact that refinanced first mortgages are larger due to debt consolidation and equity cash out underscores the need for improved customer retention efforts," notes Marple. "From a lender's perspective, a larger loan balance means more servicing premium. Furthermore, as consumers consolidate debt into their first mortgage, they reduce their number of credit providers. The lender that 'wins' the first mortgage is in the best position to 'win' the competition to serve that borrower's future credit needs."

Other findings from the MGIC Capital Markets Group's latest analysis:

• Of all borrowers who had private mortgage insurance (PrivateMI) before refinancing, 37% had it also on their new first mortgage. This suggests that many borrowers either consolidated debts, boosting their first mortgage LTV above 80%, or their home value hadn't grown enough to give them at least 20% equity. Lenders generally require PrivateMI unless a borrower makes a down payment of 20% or greater.

• Of all borrowers that did not have PrivateMI prior to refinancing, 15% had it on their new first mortgage. This signals two things -- debt consolidation, which boosted LTVs above 80%, and a migration of FHA/VA borrowers into lower-cost PrivateMI. In all, 25% of refinancing FHA borrowers used PrivateMI with their new first mortgage, compared to conversion rates of 15% for VA borrowers and 10% for conventional loan borrowers.

• Retail originations were retained by the current servicer twice as often as wholesale originations. Additionally, refinanced borrowers with two or more "relationships" with a lender were retained by that lender 1.5 times more often than borrowers who had just one "relationship." Refinanced borrowers who had four or more "relationships" with a lender were retained 2.5 times more often. A "relationship" is an individual loan, line of credit, lease, or deposit account.

About MGIC

Mortgage Guaranty Insurance Corporation (MGIC), the principal subsidiary of MGIC Investment Corporation (NYSE: MTG), is the nation's leading provider of private mortgage insurance coverage with $164.8 billion insurance in force covering 1.5 million mortgages as of March 31, 2001. MGIC serves over 9,000 lenders representing more than 22,000 locations nationwide and in Puerto Rico, helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.

SOURCE MGIC Investment Corporation

CONTACT: Geoffrey Cooper, Corporate Relations, 414-347-2681, geoffrey_cooper@mgic.com , or Amy Goller, Product Publicity, 414-347-6436, amy_goller@mgic.com , both of MGIC Investment Corporation/