I received an email this morning from a member of Active Rain in Florida. She says I am the only agent she could find who talked about silent mortgage insurance on short sales. You know, the banks that take out a mortgage insurance policy, generally on a second mortgage, years after escrow closes and don't tell anybody about it. The banks pay their own premiums.
Homeowners have no say in the matter, but they're the ones who suffer when the mortgage insurance company messes up or refuses their short sale. Personally, I wonder why the MI companies aren't sued or the banks who took out the policies. After all, it's the banks who sold the concept of an 80 / 20 combo loan to the borrower in the first place. Part of that "gilded package" included the inducement that there was no mortgage insurance.
Yet, after closing, the lender slaps on a mortgage insurance policy. I'd say the borrower didn't get what the borrower bargained for, wouldn't you? It sounds fraudlent to me, but I'm not the FDIC or the newly formed FTC Bureau of Consumer Protection. I'm just a Sacramento short sale agent. Although, as a side note, I heard yesterday that the California DRE is slipping under the BCP. How do you like those apples?
This agent in Florida said she tried to do a Bank of America Cooperative Short Sale but was rejected. The reason for rejection was because Bank of America had put a silent mortgage insurance policy on the second loan. There was a first and a second with Bank of America. The MI company said no to the cooperative. So, she went the traditional short sale route. During the process, Bank of America sold the loan to Greentree. Part of the negotiation involved a seller contribution and the banks issued a release of liability on both loans at closing.
Her questions were where did the mortgage insurance policy go -- and was her seller released? The contribution could have gone to the MI company, we'd never know. And since the seller did not contract for the mortgage insurance, I don't know how the seller could be held liable after the fact. But I am not a lawyer and Florida has weird laws.
I also imagine the monthly premium stopped when Greentree bought the loan, which is what I told her. But the bigger question is how does the mortgage insurance company make a product profitable to issue and insure a worthless loan? Moreover, how and why is it profitable for a lender to sell a worthless loan? Why would another lender buy a worthless loan? How are companies making all of this money on a loan that has no security or value? You know who buys a lot of those loans? Seterus. Who used to be LPBS, who used to be IBM. For those of you who still remember typewriters . . .
Mortgage insurance companies are making out or they wouldn't sell the product. The second lenders who sell those worthless pieces of paper are making out. And the companies that buy them are turning a profit. How is this happening? What kind of accounting is this? Does anybody know or even care?
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