What is the purpose of PMI (private mortgage insurance?)?
I have a question. All conventional mortgage loans where the buyer has put down less then 20% as a downpayment are required to purchase PMI (Private Mortgage Insurance) which is supposed to "protect" the lender against any losses should the borrower default. In the case of an FHA loan, these are insured by the Federal Government. Given this why aren't the lending instituitions collecting their losses from the insurance companies? Is the government not backing the FHA loans? Please help me understand why buyers must have the PMI but now the lenders are asking us for help???
- AnonymousLv 71 decade agoFavorite Answer
Well, they ARE collecting, when PMI is in place. The PROBLEM is, with these substandard loans, the mortgage brokers were convincing people to "avoid" pmi costs, by taking TWO mortgages - the second would be for 20%, the first for 80%. So many, many of these loans, have no PMI coverage!
Plus, before the lending institutions can collect, they have to foreclose and auction off the property - and that costs money, for EACH property.
The lenders are asking for help, because of Sarbanes/Oxley - SOX. The LAW says, the lenders have to report the "value" of the loans. Well, when no one wants to buy the loan, the "value" is zero!! So that makes it look, on paper, like their assets have dropped dramatically. They can't convert that zero into the property value, until after they foreclose and auction off the property
It's not TRUE, in reality, that the loan has dropped to a zero value, because the PROPERTY is still worth something - it's just no one wants to buy the mortgage on the property.
SO, the PMI doesn't apply. The mortgage doesn't even have to be in default! It just has to go to "not sellable", for the lender to not be able to use it as an asset. And with all the subprime market fallout, well, no one is buying mortgages, especially the higher risk ones.
Hope that helps.
- 6 years ago
I was told by M&T Bank that there was no appraisal required on my HARP refinance. I got that in writing from him on an email and had him remove the appraisal fee when my mortgage was being refinanced. My PMI was about to automatically be removed from my mortgage until my refinance was complete. I'm now told that the estimated value pulled off of the internet was now my bench mark for my mortgage's PMI so I will be paying close to $100 for the next 9-10 years instead of less than a year. Seems unfair and deceptive.
- StephenWeinsteinLv 71 decade ago
Not all the loans were covered by PMI:
1. As you mention, if the buyer put down at least 20% as a downpayment, no PMI was required.
2. Once the person has paid enough to reduce the outstanding balance below 80% of the price of the home (in other words, once the downpayment plus the amount of the loan that has been repaid reaches 20%), the person can cancel the PMI to save money.
- neidigLv 44 years ago
in my opinion assurance is a crooked way of being rewarding and could be abolished. considering the fact that i'm in the minority we've assurance. PMI is a assure to the to the deepest loan enterprise considered one of those assurance is often in basic terms required if the down charge is below 20% of the revenues cost or appraised fee (in different words, if the deepest loan-to-fee ratio (LTV) is eighty% or greater). as quickly as the vital is decreased to eighty% of fee, the PMI is often no longer required. this would ensue by using way of the vital being paid down, by using way of homestead fee appreciation, or the two. concerning lender-paid MI, the term of the coverage can variety based upon the type of assurance provided (the two universal assurance, or some style of pool assurance plans). debtors often have not have been given any know-how of any lender-paid MI, actually maximum "No MI Required" loans particularly have lender-paid MI, that's funded by using an better activity fee that the borrower will pay. i wish this has been of a few benefit to you,stable success. "combat ON"
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- 4 years ago
I wanted to purchase a home and I have good credit (720 score) I have a great job. The purchase price of the home is 650,000. What is the least amount I can put down to avoid paying the PMI?