Special offer

Steve the Plumber! GREAT QUESTION!!!! Follow up PART 1 on if PMI is Evil or not?? PMI companies are driving the loan industry! Great rates in Wisconsin!

By
Mortgage and Lending with Funky Quail Vintage

First off, this is a question I received from "Steve" that really had some meaning for me!  I was going to blog on something else, but this did more for me creative juices today than anything else!  I am posting his question, my brief reply, and THEN, what I found out from MGIC customer service!  Steve asked some fantastic questions, and raised a concern for me as well!!  Please read!  Thanks...btw it is in response to this blog:  http://activerain.com/blogsview/833748/Mortgage-Insurance-Evil-or-not-Radian-picked-a-heck-of-a-time-to-be-naughty-PMI-or-piggy-back

 

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?

12/26/2008 02:36 PM

by Steve

 

 

 My answer:

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...." 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 above 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, limited assets, and a variety of OTHER restrictions/add-ons. 

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!

 

OKAY< now my call to MGIC.   By the way, they can be found on the web at www.mgic.com

They were terrific, and the customer service person answered as best as he could!  I was impressed!

Call our MGIC Corporate Call Center to be directed to someone who can help!

•·                                 Phone: 1-800-558-9900

 

I spoke to customer service there, and was given the following GENERAL response in order to get RID of PMI!

1.  Under the Home Owners Equity Protection Act  (HOEPA) it is up to the Lenders Discretion regardless.  however,

  A)  You cannot be in what is called a declining market

  B)  You cannot have any subordinate financing  (such as a 2nd mortgage, grant, etc..etcc.._)

  C)  You cannot have any delinquency

Then, there are other factors as well, but most of the time, if you are disqualified, it is due to one or more of these reasons!  Contact your particular mortgage lender, or visit their website for specific details.

Lastly, to address your concerns over the PMI companies PAYING OUT on the claims.  They are paying, and at an extremely high rate.  They were not projected (MGIC) to make a profit in 2008 , nor are they for 2009.  We agreed together, that we both believe the market will turn a little quicker than what the GLOOM & DOOM Newsmedia keeps beating into our heads!  It is also agreed that due to these large losses, as opposed to previous years, they have INCREASED the underwriting stipulations, as well as making the underwriting process longer and more complicated!  For example, at JP MORGAN CHASE!   If a loan needs PMI, and it is over a 45% debts vs income ratio...( in other words over 45% of your income is going to debts), the loan not only has to be approved an an "in house" MGIC underwriter, but it also has to go to corporate for approval!  In addition, they are now looking at loans above a 45% DTI as needing 6 months reserves, and disposable income comes into play!  Strange thing is, that regardless of what the automated underwriting program says, they are requiring more than what is necessary!

Things that make you go Hhhhhhhmmmmmmmmmmmmm...??????????

I know this has gotten a little technical, and I apologize for that...however, it is a technical world we are living in!

Evil or not, you decide!  It is back to picking the lessor of two evils as far as I am concerned!

Thanks & again, great question Steve! 

Darin

One SOurce Mortgage,

Darin@Osmwi.com  or 608-438-4922

 

 

 

 

Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Darin... first off, thanks for the polite mention. But Conventional PMI or FHA MMI, I am not expert when it comes to that. I just know for the most part, that your MI will fall off when you hit the 78% LTV level as long as....  **  based on some of the things that you listed.

The taz credit thing only happened a few years ago or so. But I never used that as a selling point. It was just pennies. Sure, pennies can add up, but I look at the end result.. what are your goals and what are you trying to accomplish.

That is another reason why I am so high on FHA, is because of the pricing hits that you spoke of. These pricing hits are only on conventional loans, unless you have a score under 600 for FHA.

Overall, I don't focus as much on PMI or MMI as so many do with interest rate for comparisons. I think it's just another way to lose the borrower in mass confusion. When I sold against PMI, it was back in the 90's and maybe in 2002, when you could do a no MI loan with a 90% LTV...  this was usually better for the consumer than MI. Again, other than that, I didn't focus on it. The 2nd mortgages just took focus away from it and you just won't see to many of these now.  I think touching upon the fact that MI companies are paying out tons of money and that even their underwriting guidelines are tougher, is enough to be said about.  For ex.... no matter what MI company that you go through, at a 90% LTv in a declining market, you need a credit score over 700 no matter how you look at it.  AGain, just another reason why I focus on FHA.... and as in my example last week, even someone with 5% down and a credit score of 710, would have a higher payment on a conventional deal than FHA....  I am off subject, but it does pertain a little. I think it comes down to the loan officer knowing the options ahead of time, asking the right questions, and explaining it correctly.   thanks again for the polite mention.

jeff belonger

Dec 26, 2008 12:49 PM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Awesome comments!  I appreciate them!  I agree with you!  Overall point I think to anyone reading this is that they need to work with a professional who KNOWS what they are doing, can give them options, and is interested in more than just closing a loan!  The customer for life theory does apply at our company, and comments like this are exactly why! 

I never ever ever SELL PMI, it is more something that they HAVE to have in certain situations, and in our market here in Wisconsin, we only have 1 declining market area......we are lucky! 

I also just saw the TOP 10 areas in the country next year that will be losing up to 25% of their value...most are in California, Florida, and I think # 9 or 10, is Washington DC!   Another thing that make you go...hmmmmm???

Thanks again....... Darin

Dec 27, 2008 10:47 AM
Mobile Austin Notary
Apostille/Authentication/Embassy Legalization, Notary Public, Loan Signing Agent & Process Server Services - Austin, TX
www.mobileaustinnotary.com

Thanks for the great informaiton, i didnt know half of this.  butterfly

Feb 27, 2009 08:02 AM