PMI is Private Mortgage Insurance. The one thing that I noticed back during the 2004-2006 mad rush of purchases is that a huge amount of the loans had so much in common - - PMI! But why?
- 100% financing - remember how popular this type of financing was? Interest Only..
- No down payment
- PMI fees were up to about $200 per month
- Borrowers were saying they were told that they would only have to pay the PMI for a short period of time -à until the loan was paid down to 80% loan to value.
But isn't that a good thing that you have PMI to pay/cover the bank should you default on the loan or God forbid foreclosure?
ANSWER and NEWS ALERT: No it is not helping, it could really be hurting borrowers that are finding themselves in default, bout to lose their home, having to do a short sale.
Well guess what? It did not work out to be such a good idea after all.
Why didn't it work? Well, folks it was mainly due to:
- Loss of jobs, reduced income, severe family situation changes
- The market shifted, to a downward roll (kind of like being on roller skates doing a steep hill)
But doing all of this and still today, PMI is still getting paid. The 80% loan to value is not happening and probably won't happen for still a long while. And PMI is full of tricks... they are asking the homeowner to pay for a number of years on an Insurance plan that should be paying the bank out of the money they have already collected! Not new money....
Why and how is it hurting? PMI has forgotten what their purpose is. Which is to pay for the default... not let the bank suffer the loss - make up for it by paying and they should be using the money they already collected. NOT ASK the homeowner to pay MORE!
I just lost a short sale approval because PMI demanded an upfront amount of $7500 or for the borrower to sign a promissory note for $15,000! Now mind you this is a homeowner that is in proven hardship and yes.... Was paying PMI for protection.
So the way I see it... PMI is a
- Ripe off
- Liar
- Of no benefit
- Catch 22
- Let down
- Or have a bad case of "we forgot our purpose"
- And so on.....
;)
;)
Seems to me that PMI was never meant to insure against the market, the buyer's loss of equity or anything other than to insure the lender against loss if the buyer defaults.
For that it works. If the buyer defaults and the house goes to foreclosure, PMI pays the lender.
If the owner doesn't want to pay damages to the PMI company for approval of a short sale, they can simply let the house go to foreclosure and the PMI company will have no choice but to pay.