Posted by Julie/MI on 7/14/08 8:53pm
Msg #255176

OT: PMI question

This is probably a stupid question, isn't the purpose of pmi to pay the lender the mortgage balance in the event the mortgagor defaults?

If so, how to the mortgage holders make and receive a claim? Can someone give me a simple explanation?

Reply by LKT/CA on 7/14/08 9:15pm
Msg #255179

www.mortgage-x.com

In the search box, type in "what is private mortgage insurance"

Reply by Julie/MI on 7/14/08 9:25pm
Msg #255182

Let me clarify...

Thanks LKT for your speedy response. I know what it is, but are the lenders claiming it, who operates the PMI insurance, shouldn't claims be paid out for those loans that had PMI?

Reply by Nomad/OR on 7/14/08 9:32pm
Msg #255185

Re: Let me clarify...

When I bought my current property I was required to buy PMI because I did not have %20 down payment. This was organized through the mortgage company and was theirs. Once there was enough equity in the property, I was able to cancel the PMI and save the extra money for escrow tax.

Reply by LKT/CA on 7/14/08 10:26pm
Msg #255189

Re: Let me clarify...

I wanted to provide the site for you because if your question isn't answered in the mortgage library, you can click on "contact us" and ask a mortgage related or real estate question and one of the "experts" will email you the answer.

Reply by NCLisa on 7/15/08 12:18am
Msg #255201

They make a claim to the PMI company after the property has been forclosed on. Most of the loans that were defaulted on in the last few years had no PMI, that is what getting a 1st & 2nd does, negates PMI, therefore making the transaction riskier for the lenders.

PMI companies are small and large, there are hundreds of them.

Reply by PAW on 7/15/08 7:05am
Msg #255207

Maybe the following FAQ from Delphi will answer your question:

Question:
I made an offer on a home that is listed by a realtor but is in pre foreclosure. My original offer was rejected, they countered, I rejected their counter offer and we were stuck. Now the seller's agent has contacted me asking if I would be interested in making another offer. My agent told me that when they countered my offer the lender wanted a certain figure that would make them whole the PMI not withstanding.

I am guessing that there is PMI on the existing mortgage as it was virtually a 100% loan. My question is how does PMI work to protect the lender? Will the lender be compensated 20% of the loan amount? Will the lender be compensated for the entire loss if I make a much lower offer than I did the first time?

Answer:
PMI does not cover the full exposure of the lender. They are covering the top slice (maybe 20% in this case) plus some fees. In the case of a 90% loan, then PMI is usually 10% of loan amount. In order for the Lender not to void their claim for the PMI coverage, several things must happen. The lender must manage the default to its completion, usually foreclosure or a workout or short sale. Any agreement short of foreclosure must be approved by the PMI company.
PMI may want the house back following a foreclosure, in order to attempt to recoup any loss they may have due to a claim. In that instance, they may not approve a short sale.
PMI will often approve a short sale if the market indicates that they have no shot at recouping their loss or claim. Or often, there is some middle ground, whereby the Lender could sell it for 85 to 90% of the original loan amount, thereby reducing any such claim to PMI. Much like any foreclosure and dealing with Loss Mitigation, each case is different... not sure why, maybe it is the Rep you deal with, the latest whim of mgmt based upon their recent losses, et al... Those policies change all the time, so the best thing to do is ask... and see what they say.
Just know that unless you are paying 100% of what is owed the Lender, they will need to get PMI to concur with any decision on their part, so they do not lose their opportunity to file the insurance claim, except in the rarest of instances, a Lender may decide to forego the PMI claim.

Reply by MW/VA on 7/15/08 10:13am
Msg #255218

Thanks--this was a good topic.

Reply by Dennis_IN on 7/15/08 10:53am
Msg #255223

I noticed that on the TIL the amount of payment decreases each year due to a decreasing PMI. But the borrower questioned the $ amount of the first few years, which was larger than the amount of P&I on the note, and what I found out was this amount (on the TIL) included PMI. Good to know when going over the info. on the TIL. Reading this post reminded me of this tid bit.

Reply by Julie/MI on 7/15/08 11:10am
Msg #255227

I think I missed the mark again.

I know the media reports about defaults on subprime loans, but many other loans are in default too. I want to see some data on how much the PMI insurance companies have paid out during the last 3 years opposed to 8 years ago. KWIM?

How come nothing on the news about shortfalls in this insurance industry? Many of the IVy mortgage loans were sold to Countrywide, Wells Fargo, WaMU, "real" banks and the loans were risky as the intent was to allow those without 20% down to get the American dream. Seems to me these banks should be received record number payments based on the claims going up, and the PMI mortage insurance companies "whines" and bellyaching would have been reported.

Reply by PAW on 7/15/08 1:06pm
Msg #255238

Since the lender must manage the default to its completion, usually foreclosure or a workout or short sale. Any agreement short of foreclosure must be approved by the PMI company. The insurance company doesn't pay until the lender has exhausted all resources, including foreclosure sales. And, as far as I know, the PMI companies don't have a shortage, since insurance premiums are paid in advance and the insurance company must keep enough in assets to cover their PMI liabilities.

I also submit that most of the ARMs and sub-prime loans that are in default do not have PMI protection. There were a lot of 80/20, 90/10 and 75/25 loans going around that defeated the need for PMI. Since there's no insurance, the lender must eat a lot of losses.

Reply by Carole Breckbill on 7/15/08 2:33pm
Msg #255252

Gotta love those insurance companies! n/m