PMI Protection

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PostPosted: Mon Jul 06, 2009 6:10 pm   Post subject: PMI Protection  

Because of the housing downturn and losses in our 401 we might have to let our house go into foreclosure. Will having this insurance protect the mortage co and the borrower?

donsullie
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PostPosted: Mon Jul 06, 2009 8:45 pm   Post subject:   

Maybe if you ask one more time it will make sense to be asking this in an auto insurance forum.



The answers are No. No. and No.



Also, how on earth could losses in your 401 (I assume you mean 401(k)) result in not being able to pay your mortgage? That makes no sense.



Good luck.

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PostPosted: Mon Jul 06, 2009 11:29 pm   Post subject:   

I don't get it either. What do your 401(k) losses have to do with your mortgage? Were you using the 401(k) funds to pay for your mortgage? Should I assume that you are receiving payment from your retirement plan and those payments are decreasing due to the market?



Why have you not put your retirement plan dollars into something more conservative? If you're retired and using the funds, they need to be in a preservation and not growth mode.



Can you give us some more insight?



InsTeacher Cool

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PostPosted: Tue Jul 07, 2009 2:47 am   Post subject:   

PMI is insurance to benefit the mortgage company. If you default and the PMI carrier pays the mortgage company, the PMI carrier can come after you for what they paid.

tcope
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PostPosted: Tue Jul 07, 2009 7:35 am   Post subject:   

Hi Donsullie, the PMI is taken out to protect the lender in case the borrower defaults on the mortgage loan. It'd not under any circumstances protect the borrower. And, Tcope is also right the PMI carrier might come after you in the future to recover what they would pay to the mortgage lender.

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PostPosted: Tue Jul 07, 2009 11:26 am   Post subject:   

I doubt there's any 'might' to it. The PMI carrier will come after you for repayment.



Please help us understand this portion of your post

Quote:
Because of the housing downturn and losses in our 401 we might have to let our house go into foreclosure


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PostPosted: Tue Jul 07, 2009 4:35 pm   Post subject:   

I understand the basic concept of PMI but must admit I don't understand why the PMI company would come after me after paying a claim on my behalf. If they are going to come after me if I default and they pay a claim on my behalf, what was I paying premiums for?

Is it because unlike home or auto insurance they can't increase my rate after a claim because I'd no longer have a "policy" ?

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PostPosted: Tue Jul 07, 2009 8:35 pm   Post subject:   

Quote:
what was I paying premiums for?
You were paying the premiums for the policy that the mortgage company required in order to loan you the money for the home (in case you stopped paying). The insurance was issued to and for the benefit of, the mortgage company. Who it protects is not always related.



So your paying the premium as a condition of the mortgage company loaning you the money for the home. It's a little like key man life insurance. It does not benefit the person who dies, rather the company the person worked for... as they suffer a loss as well.



The premium is related to the risk that the PMI carrier will never collect back what they payout... which I imagine happens quite often.



I'd guess that the average amount paid to PMI carrier over the life of a loan is about $15,000. On a single default a PMI carrier could easily pay out 20 times that amount. This is over the course of 20 years.
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PostPosted: Tue Jul 07, 2009 9:28 pm   Post subject:   

I suppose that up until recently there probably weren't many PMI claims paid. Back when houses were still appreciating instead of depreciating over the course of the loan there wouldn't have been near as many cases of a Mortgage lending suffering a "loss" on a defaulted loan. Since they seize collaterall and resell it they probably profited on many defaults up unitl say about the 4th quarter of 2007/first quarter 2008.

Of course I know that in today's market a foreclosure is much more likely to result in a loss to the lender.



So, say I've paid $75.00/mo for PMI for the last 4 years. I owe about $106,000 on the loan so assuming I lose my job and default, they take my house back. Foreclosures similar to my house in my neighborhood are going for about 20-25% of market on average and my house is pretty damn nice. So lets say they sell it for $90,000 and it costs them $6,300 to do so. That means their "loss" is $9700.00 which the PMI carrier reimburses them for then the PMI carrier comes after me for $5200?



Hmm.



Wouldn't it be crazy if auto & home insurance worked this way? Well sir, we've paid your lender the $30,000 total loss on your new car, but since you just started the policy 6 months ago and have only paid $375.00 in premiums were going to need the other $29,625 back now. If you don't have that much we'll be glad garnish your wages.

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PostPosted: Tue Jul 07, 2009 9:53 pm   Post subject:   

Quote:
That means their "loss" is $9700.00 which the PMI carrier reimburses them for then the PMI carrier comes after me for $5200?
One way to look at it but your missing a lot of money that it's costing the bank. They are not in the business of selling homes, so their expenses are much higher then that. But also, they lost the interest over the remaining 26 years. That is what they were owed and now it won't be paid.
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PostPosted: Wed Jul 08, 2009 1:16 am   Post subject:   

Okay, I can agree that it probably costs them more than 7% to sell the foreclosed house. But I don't owe the bank 30 years of interest just because I took out a 30 year mortgage. I can pay the loan balance off anytime and I don't have to pay the unearned interest. Would they really consider that part of the loss if I default?



Do you have first hand experience with this or what? I've never met anyone, including lenders, who could give me straight answers about how PMI really works.



Didn't really ask a lot of questions when I took out the loan because default seemed completely impossible (and still highly unlikely thank goodness) but now I'm curious enough to want to get to the bottom of this.

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PostPosted: Wed Jul 08, 2009 8:51 am   Post subject:   

Correct me if I'm wrong, but doesn't PMI compensate only a portion of the loan amount owed to the bank?



I guess that on a 90% loan the amount of PMI insurance is only 10% of the loan amount. Also, I gather that short selling of the property or foreclosure needs the approval of the private mortgage insurer, is that true?

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PostPosted: Wed Jul 08, 2009 11:12 am   Post subject:   

Quote:
Would they really consider that part of the loss if I default?
No, their loss of interest over the term of the loan isn't considered in the default. They are due the balance of the loan. I don't think that PMI pays until the home is sold...While I personally don't have any experience with this (thank God!). My next door neighbor did get his house foreclosed. The way that one worked is the bank sold the house (to a flipper). Then PMI paid the bank. Then the PMI carrier came to my neighbor for repayment. He started bankruptcy proceedings just before he got his foreclosure notice, so I don't know how that worked out. In his case the numbers worked out like this (or pretty close from what I remember)... He owed the bank 75k, the bank spent about 3k cleaning that mess up, (they shot themselves in the foot trashing it pretty bad before they left) the bank sold it for 35k (including the realtor fees). PMI paid the bank, and both the bank AND the PMI carrier came after him for 43k. I think maybe the PMI carrier didn't cover the clean up of the property. I don't recall how the break down was. But I do remember that both the bank and the PMI carrier were threatening suit.
Quote:
Correct me if I'm wrong, but doesn't PMI compensate only a portion of the loan amount owed to the bank?
Kelvin I thought that PMI covered the loan balance, I could be wrong. We (fortunately) didn't have to carry PMI on the house we live in now (but have had on other homes over the years) so I can't look at a policy. Anyone else out there have a PMI policy or contract they can look at?
Quote:
I guess that on a 90% loan the amount of PMI insurance is only 10% of the loan amount.
Oh no Kelvin I'm just sure that isn't correct. What good would it do to only compensate the bank for the owners down payment?
Quote:
Also, I gather that short selling of the property or foreclosure needs the approval of the private mortgage insurer, is that true?
That may be correct or may have some conditions, ie if mortgagee wants to sell for less than ''blank'' percentage of loan pay off


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PostPosted: Sun Aug 22, 2010 10:06 pm   Post subject: pmi  

considering pmi would have to pay up to 20% of the loan amount, wouldnt it be wise for them to pay the deliquent payment amount, and keep the homeowner out of forclosure?


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PostPosted: Wed May 16, 2012 10:12 pm   Post subject:   

So basically, we are paying a 3rd party company to insure a company that we borrow money from to hunt us down like a turkey on thanksgiving and take more of our giblets! lol


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