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Mortgage Insurance! Evil, or not? Radian picked a heck of a time to be naughty! PMI or piggy back?

By
Mortgage and Lending with Funky Quail Vintage

Hello everyone!  It's me again, affectionately known as D-Money!  :)

For the first time in a long time, I kinda had a bad day today!  It is ALWAYS A GREAT DAY to be in the mortgage business, but I lost a very large mortgage customer today that I have had with me for almost 5 years!  Why you ask?  Not because I did something wrong or badly, but because EVEN THO my rate and closing costs were lower than his Credit Union, they had cheaper PMI!  AND CHEAPER BY QUITE ALOT!!!!! Thus in turn, his payment was significantly cheaper!   This makes me very angry, so read the following to find out why!!!!!

For those of you who don't know what PMI is, it stands for Private Mortgage Insurance!  Prior to all of this economy and mortgage crisis junk, we as lenders were kinda BRAINWASHED into thinking PMI was an evil thing!  We as lenders would close first mortgages at 80% of the value of the home, and then PIGGY BACK a 2nd mortgage for either the remaining down payment on a purchase, or the remainder of the cash necessary to consolidate bills on a refinance!  Thus, avoiding the EVIL PMI>...wwoooooooooo

At some point, I am confident that SOMEBODY figured out, that nobody was buying mortgage insurance anymore, so not only did the PMI companies make it cheaper, but they also lobbied congress for help!  They got that help in the form of a TAX DEDUCTION!  NOT everyone qualifies to "write off" the PMI, so please please please, consult your tax advisor for more information!  Anyway, we as proud mortgage lenders have started selling PMI again!!!  HURRAHHHH!   (Oh, and it was always required on FHA, so all of you FHA lenders, nothing has really changed much! )   How were we thanked for this, well here's the rub!

Have you all heard about Radian's FREE after 5 Community PMI product?  I had not , that is until today! The customer has a reduced rate on his PMI at 90% loan to value, meaning, 90% of the value of his home!  Then, after only 5 years, the PMI is taken off, and goes away!   Wow, this is a good product!!!  I hate to advertise for my competitor, but it is what it is right??

My PMI payment on a $238,500.00 loan was approximately $143.10 per month.  The Credit Unions PMI payment, was only $67.55 per month.  I received this information from the RADIAN REP who handles the State of Wisconsin!  He said it is a "community" product for local/small town banks, and credit unions.  I asked him if I could qualify, and he said no!....hmmmmmm....again, we owe a debt of gratitude to them for really helping us at this time of need!   These are the same folks that have given me PMI calculators, golf balls, pens, sticky notes, sunglass holders, and more gidgets, widgets and gizmos' than I have ever seen in my life! These are the same people, that when I WAS a Manager for a large mortgage lender, they were BEGGING ME for my business!  In the end, the customer wins!  Honestly, I am glad for that, ....but doesnt it sound a little like collusion??  I believe it is an unfair business practice, and one more reason to NOT sell PMI!  Well, at least for Radian! 

 As a footnote, I offered the customer the sun, then moon, and the stars, and we will see if loyalty still counts for something!  One thing the customer DID say to me, was that this was the first home he had purchased, and both the purchase and the refinance I had done for him, went smoothly, and the numbers did not change from initial disclosure, to closing!   That made me feel better, and allowed me to step back down off the ledge!  :)  LOL....anyway, one thing I DID offer him, was LPMI, which stands for LENDER PAID MORTGAGE INSURANCE. However, in his case, it was truly a toss up...as the product his credit union has, ENDS, interest does not!  I advised him to take the Credit Union deal! 

I have posted this for Lenders, Realtors, and anyone else who aggressively competes in the smaller market areas of the country!  I am all about knowing my competition, and am very proud that we are not only surviving, but thriving in this difficult time!  I do not sell rate!!!!! I never will!  I sell service, community, and a 20 year working knowledge of giving customers the best possible future a mortgage can provide to a family!  It is a great time to be in the mortgage business! 

Thank you!   D-Money

PS:  Monday, I am going to the courthouse, pulling up ALL of the courthouse records for every single customer they have, and over the next week, am going to call their entire customer database, and solicit a $500.00 refinance, to every single customer!!   Thank you Radian!

Travis Egan | 262.725.1505
Travis Egan -Movement Mortgage, NMLS # 655284 - Lake Geneva, WI
Movement Mortgage NMLS # 39179

Darin,

I work for a Community Bank and I was unaware of this product.  I believe there is a legitimate and very real occurrence happening in our industry right now.  I think there is a move a foot to attempt to make brokers irrelevant.  I don't believe they will succeed.  It's unfortunate and I'm sorry you had to deal with this.

I once asked my MI rep if he thought all the cutbacks in MI & the increased premiums would drive more and more buyers to governmental loans and he was candid and said yes.  This business can be frustrating, this I know.

Warmly,

Travis Egan

Lender, Lake Geneva Real Estate

Dec 12, 2008 11:39 AM
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

D-Money - As far as the nickname, works for me.  I'm loving the fact that I was introduced to you.  You are a plethora of knowledge.  I wasn't aware of this as well, yet sell similiar to how you do... less about 13 years of experience at this point. 

Dec 12, 2008 11:43 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Travis,

Interesting points you make, considering you worked for CW, and before that CTX right??
I knew you back in the day, while I was running the CW branch in Madison.  

Im glad you found your way, and I actually reviewd your profile the other day!  I was very sorry to hear about Ryan btw...and his son....very sad...and actually, Im kinda angry about it! 

Hope you are doing well, and I do agree with your comments.  I don't think they will succeed at making brokers irrelevant either!  It has always been that the BIG advantage of a local credit union, or community bank, was that they could make "common sense lending decisions", compounding the fact that they can do inhouse loans, and non-warrantable condos!  If that add this nitch, it will bring community lending back a little bit, but NOT in the populated areas where the money is.  However, community lenders as well as credit unions, CHURN & BURN!  Their customer database is deep, old, and regurgitated!  "if it was good enough for g pa, and good enough for pa pa, it is good enough for me!".  Interesting thing is, it breeds a "stasis", and non growth.  That is, unless they hire people who have aggressive lending backgrounds, such as yourself!  People go to work at places like this for more consistent income, because they have families to feed!  I don't think that the general consumers out there, really understand that Mortgage lenders are people too!  LOL   We have bills to pay, and a consistent salary + a small commission or bonus, adds up to a long term employee with community pride and loyalty.  I was NOT cuttin on Community Banks, I just think that the MI companies are HUGE HYPOCRITES, and cry babies!  Do you know how many claims in the year say, 2001 there were against MI Companies for every 5000 policies sold?  Ask  your MI rep that!!  Bet they don't even know!  They have made SO MUCH MONEY OVER THE YEARS it is pathetic! interestingly, they are the reason we cannot do cash out loans at higher LTV's anymore, not Freddie, Fannie, or any of the lenders!  The MI companies wont insure them! 

Take care, and God Bless!  D-Money

 

Oh, and Sardi!  Dig you too man! I love learning, but I love teaching more!  I come from a family tree of over 75 teachers!  All in different fields!  Mine, is sales, marketing, and mortgages! 

Best always, D

 

Dec 12, 2008 12:04 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Darin.... I can certainly see your frustration and I would agree in some cases, about business practices. But couldn't this be the same with Coke and Pepsi, to where they will only sell to certain restaurants?  I am sure I could think of better examples.. just tired. Sure, we need to look out for the borrowers best interest, but it could be frustrating, because we all want the piece of the pie... especially if we .. you or I, would be the better fit, because of our knowledge and how treat others. but to lose it to someone that just had the product.  thanks for sharing this... I need to look into it also.  PS...  D-money, catch you on the down low...

jeff belonger

 

Dec 13, 2008 01:21 PM
Anonymous
Steve

I thought PMI is insurance, paid by the borrower, to protect the lender in case the loan goes into default?  Why aren't these lenders cashing in their PMI Insurance on all these bad mortgages, or are they???  My last mortgage was an FHA 30 yr. fixed with a $57.00 month PMI insurance bill added on to my monthly payment.  I have also heard that if a borrower is ever 30 days late at any time during the last 24 months, they must continue paying PMI even though they may owe less than 80% loan to value?

Dec 26, 2008 06:36 AM
#5
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Hey there Steve!

Yes, this is ALL very frustrating!
I just got off the phone, btw, with a representative from MGIC.  They are the largest of the Mortgage Insurance Companies, and are most likely the ones used most often!  Typically, mortgage insurance companies have had an extremely LOW default rate!  That is because rates were level, values level or increasing, and customers were happily making their payments!  YOU BRING UP FANTASTIC POINTS!  IN fact, I am going to BLOG on this very subject this weekend!  I will do some research FIRST THOUGH!!!  Many of the loans that are actually going into default, are subprime type products, that are also typically ARMS!   These products dont have PMI!   That was one of their allures....was that even though you are paying a higher rate, it doesnt have PMI!  Hurrah right?? Wrong.  It was a positive in SOME cases....but exactly that...some!  In regards to your FHA questions, there are several factors that DO come into play.   I would contact   http://activerain.com/jeffmortgageman He is also listed abover your comment!

His email is also:  jbelonger@ihmci.com

He is also on Active rain, and has 16 years experience, many of which involve FHA.   You will need to give him a few more facts though about your situation, or the situation that your bring up!  There is generally alot more to it than a simple answer!  :(

I will tell you that in my 21 years in the industry, we had always been told PMI was EVIL!   That is what created the popularity of home equity loans!  They were used often times to avoid PMI.  Sooooo....the PMI companies, and then later the Government, said to themselves...."hey, for years we have made huge profits, with no losses...hmmm.....now, nobody is buying our product!">   So, what did they do, but lobbied the government to make PMI tax deductible.  IN actuality, this was a good idea!  However, it isn't tax deductible for everyone...so consult your local accountant or tax attorney, or whomever does your taxes!  Restrictions do apply, but MANY  people qualify!  This made the product attractive again.  The net result is now people are combining their 1st mortgage with their 2nd mortgage, and depending on the equity in the property, may have to purchase PMI now, when they didn't before!  This is okay in many cases because they are rolling two loans together and getting away from their interest only payment on their home equity loan, and setting it up on a lower rate!  Hurrahh! 

ONE DOWNFALL THOUGH!   There are huge  (what we call pricing hits), adjustments to your rate, depending upon your credit score, loan vs. value, as well as the REASON for the 2nd mortgage!  For example, if the 2nd mortgage was used to consolidate debts, and now you are combining the two mortgages, it is considered a CASH OUT LOAN!  One of the problems I see, is that this adjustment is WAAYYYY too big!   If for example, you had used the 2nd mortgage to buy the house, this is considered a "rate & term" refinance.  Different animal here!  Very small pricing adjustments if any!  This to me is not right!  However, these "adjustments" are dictated to us by Fannie Mae/Freddie Mac, and are driven BY THE PMI COMPANIES!   There are many different PMI companies out there, but in the end, the average consumer pays about the same at any of them!  However, where  you get into differences are on questionable credit situation loans, HIGHER THAN NORMAL LOAN AMOUNTS vs Purchase Price or value...commonly referred to as LTV or loan to value, as well as a person's assets also come into play! 

All in all, I am going to use your questions as my next blog, but also add to it what I have found out from the PMI company!  While writing this, I also CALLED MGIC!  My blog will have the details of that call!  Thank so much for your response to my initial blog!

Darin

 

 

Dec 26, 2008 08:29 AM
Anonymous
Steve

Seems like attorneys would be standing in line to do a "CLASS ACTION LAWSUIT" for all those borrowers who were told they could Refi out of their Subprime loan in a couple years, and PMI would cover the loan if the borrower defaulted on the loan, which was not true ...

Mar 29, 2009 01:37 AM
#7
Darin Osenberg
Funky Quail Vintage - Nashville, TN

I could not agree with you more Steve!

And, you are correct, that is not exactly HOW pmi works...that is for sure.

As far as refinancing OUT of the subprime loans, I will defend all lenders by saying this....we, cannot control what a customer does once they leave our office.  Value, until recently was never the problem.  In most case, the two biggest reasons people went with the subprime loans, was due to either having income that didnt qualify conventionally, or wasnt verifiable, OR, credit.   If we as lenders talk with our borrowers, and convince them to WORK on their credit, and they dont...then, who is responsible??  Who is at fault?? I know we cannot help it if someone goes out after refinancing, and gets a home equity loan, buys a boat, and/or new car.   THEN, their debt structure changes, as well as their credit score!  More and more, we are seeing REVOLVING DEBT being the #1 culprit of credit score change!  

Thanks again for the comments, and if you ever want to contact me directly, please email me at Darin@osmwi.com...or call 608-592-2227

 

Thanks

D

Mar 31, 2009 05:41 AM