It's been a bad time for lenders in the USA, but now mortgage insurers are also signalling that they are not happy with entire product ranges being yanked, potentially squeezing large numbers of home buyers and refinancers out of the marketplace.

The first to react on Feb 6th was the oldest and largest private insurer of home loans, MGIC, when they issued a bombshell warning that in much of the USA, it would no longer provide coverage on cash-out refinancings; reduced-documentation loans; mortgages with deposits of less than 5 percent; loans for rental houses and other non-owner-occupied investor properties.

This action, which take effect March 3rd, covers a number of markets, plus four whole states, Arizona, California, Florida and Nevada. MGIC also tightened eligibility standards nationwide on a number of low deposit loan categories:

Home buyers who are looking for mortgages with less than 5 deposits must have high minimum FICO credit scores and borrowers who are using the USA form of "self certification" have to place a 10% deposit on their home.

Milwaukee-based MGIC is a giant in the industry with nearly $200 billion in insurance coverage in force on 1.3 million mortgages, but in the current climate it reported that it lost almost $1.5 billion in the last three months of 2007, and that it is exploring ways to raise more capital.

Like other private mortgage underwriters, MGIC provides lenders protection against losses on low deposit loans (less than 20 percent borrower equity) and they and all competitors are expected to adopt their own versions of at least some of MGIC's cutbacks in coming weeks.

These cutbacks will be soon be felt by buyers who can't come up with substantial deposits, as they will need higher credit scores to get the loan they want, plus they may also find certain types of loans are simply unavailable.