I recently purchased my first home and PMI costs definitely influenced
my choice of lenders. I was outraged at the cost and could not believe
that the only underwriting criteria was this magical 20% loan to value
ratio. I'm sure that number is founded in solid actuarial practice; NOT.
Can you believe that it doesn't even matter that your two year combined
household income is greater than the purchase price of the home? They
need all this information about your personal finances, credit history,
recent rental history, employment verification, even a copy of my wife's
MBA diploma and on and on... (mountains of paper work). Then of course
they'll underwrite you because you are the cream. Then what happens.
Well, none of this matters in PMI.
OK. The good news is I did my homework and discovered the 80/10/10
split mortgage, a.k.a the piggyback mortgage (do a search on the Web on
this). I am not sure this is the same as the home equity line referred
to in other postings. What happens here is that 80% of the loan is
shipped out to the secondary mortgage market (and so this market does
not require PMI) and 10% remains with your bank of business, oh and 10%
down. My rate in March of 1998 in NJ was/is 6 3/4% on the 80 and 9 1/4
on the 10. My weighted average rate is just over 7% and I do not pay
any PMI which would have been around $80 a month, not tax deductible. I
am far better off with the slightly higher rate on the 10% and won't
bother with the numbers. Oh, and I pretty sure my bank of business has
a secondary claim on my home in the event of default and thus requires
the higher interest rate charge. Furthermore, I can pay off the higher
interest rate loan with no penalty at any time.
The market is shifting (doesn't it have to) to reflect better
underwriting criteria. Point in case, the 9 1/4% was reflective in
part on our personal information (did anyone say Underwriting). I also
know that the PMI companies are taking action (albeit tiny in my
opinion). They are putting together packages that allow a lump sum
refund of a portion of your PMI payment if you make say five years of on
time payments. I guess this is sort of like a dividend payment for good
experience.
What will the market look like with regard to PMI in say 10 years. I
believe it will be quite different.
> John Noble
> A.C.A.S.
> Increased Limits & Rating Plans15-6
> Insurance Services Office, 7 World Trade Center, NY, NY 10048
> Phone: (212) 898-5832 Email: jnoble@iso.com
Visit our web site at http://www.iso.com
> ----------
> From: gcuzzi@colognere.com[SMTP:gcuzzi@colognere.com]
> Sent: Monday, October 26, 1998 4:17 PM
> To: Brandon_Keller@ncci.com
> Cc: casnet@lists.casact.org
> Subject: Re: P&I Insurance
>
> Regina covered most of this, but I'll put my 2 cents in anyway.
>
> What the mortgage companies are trying to do here is to protect
> themselves
> in the event of a real estate crash (think back about a decade or so).
> If
> you defaulted, the mortgage people would be left with a house that is
> worth
> substantially less than the 90% they "paid" for it. If they had only
> put up
> 80%, there's less of a chance of them losing money. Also, the mortgage
> company isn't going to wait around for the best offer, like you or I
> would.
> They will sell for something below appraised value just to get out
> fast. I
> think the insurance only covers the difference between current
> appraised
> value and what the mortgage company initially put up (90%), but I'm
> not
> sure. As far as how much you are paying for this, I can't say. I'd bet
> you're being gouged. By the way, if you go the home equity line route
> and
> the real estate market does take a nose dive, expect the bank to come
> calling.
>
> Regards,
> Greg C.
>
> To: casnet
> cc: (bcc: Gregory A. Cuzzi)
> From: Brandon_Keller@ncci.com
> Date: 10/26/98 01:51:34 PM
> Subject: Re: P&I Insurance
>
>
>
>
> This mystifies me for the same reasons that you pointed out - the
> lenders
> already have a great deal of protection. The only guess I have is
> that
> mortgage rates are so low (compared to other types of consumer debt)
> that
> there is no margin for this additional risk built in so they charge
> those
> of us with less than 20% down to cover the potential losses and costs
> of
> selling a "repossessed" house. It does seem like a lot of money for a
> little risk though.
>
> In addition to the monthly payment, you probably also paid a lump sum
> Mortgage Insurance Premium when you closed - probably a few thousand
> dollars. You get some of this back if you move within the next few
> years.
> Otherwise it is gone. (This may only be for FHA loans. I'm not
> sure.)
>
> The other problem is that I believe you have to keep paying the
> monthly
> Mortgage Insurance Premium even after you have 20% down unless you
> refinance. If you got a good interest rate now, you could lose it if
> interest rates are higher when you refinance to get rid of the
> Mortgage
> Insurance payments. (I have heard that you may be able to remove the
> Mortgage Insurance Premium by writing a letter to the lender once you
> have
> 20% down, but I wouldn't count on it.)
>
> There are creative ways to get around Mortgage Insurance such as
> putting
> 10% down and simultaneously getting a 10% home equity line of credit
> so
> that you have 20% "equity." You pay a higher rate on the home equity
> line
> of credit but avoid the costly PMI.
>
>
>
>
>
> timothy.regan@zurich.com on 10/26/98 10:29:35 AM
>
> To: casnet@lists.casact.org
> cc: (bcc: Brandon Keller/BOCA/NCCI)
> Subject: P&I Insurance
>
>
>
>
>
>
> I had noticed the discussion on title insurance and it reminded me of
> another type of insurance tied to home purchases that really bothers
> me:
> Principal & Interest Insurance. I recently bought a new home and
> discovered on my payment slips a monthly charge for P&I that is nearly
> double the amount for my monthly home owner's insurance! Does anyone
> out
> there understand this??????? I was told that until I have at least
> 20%
> equity in my home (I only put down 10%) I would have to keep paying
> for P&I
> Insurance; this, they said, was to protect the mortgage company in
> case I
> defaulted on my loan. I may not be the sharpest knife in the drawer,
> but
> if I stop making payments, doesn't the mortgage company get to (1.)
> take
> the house, which more often than not appreciates in value, and (2.)
> keep
> all monies that I've already paid?!?! It would seem to me that the
> mortgage company is, for the most part, already protected; this isn't,
> after all, second chance auto financing where the repossed car isn't
> worth
> anything!. Then why are the rates SO HIGH? I have discussed this
> insurance with other people in our department and they seem to be just
> as
> mystified about it as I am. I would appreciate anyone's input on
> this.
>
> Tim Regan
> Universal Underwriters
>
>
>
>
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