Things to Watch Out For With Mortgage Insurance When the sub-prime mortgage crisis occurred, the reason why many homeowners went into foreclosure was because they could not pay their inflated mortgages.
Since there may have been no insurance offered at the time, both the lenders and the homeowners suffered a loss.
Private Mortgage Insurance is primarily utilized for homeowners who are considered at high risk for payment. It does not count toward a home’s equity, or provide any other benefit than ensuring that if a homeowner goes into default, both the lender and the homeowner are protected.
Private Mortgage Insurance or PMI is being widely demanded by lenders today, especially if new homeowners cannot put up a down-payment of 20% or more, or if they are borrowing more than 8% of the market value of the home.
Keep in mind, however, that you are protected as a homeowner under the Homeowners Protection Act, or HPA. It is important to know your rights as it pertains to PMIs.
According to the Federal Reserve, under the Homeowners Protection Act, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less.
You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years.
Your lender may require evidence that the value of the property has not declined below its original value, and that the property does not have a second mortgage, such as a home equity loan, taken out against the value of the property.
The Homeowners Protection Act also requires that: “For loans obtained on or after July 29, 1999, the HPA establishes three different times when a lender or servicer must notify a consumer of his or her rights. Those times are at loan closing, annually, and upon cancellation or termination of PMI.
“The content of these disclosures varies depending on whether: (1) PMI is “borrower-paid PMI” or “lender-paid PMI,” (2) the loan is classified as a “fixed rate mortgage” or “adjustable rate mortgage,” or (3) the loan is designated as “high risk” or not.
At loan closing, lenders are required to disclose all of the following to borrowers:
* The right to request cancellation of PMI and the date on which this request may be made.
* The requirement that PMI be automatically terminated and the date on which this will occur.
* Any exemptions to the right to cancellation or automatic termination.
* A written initial amortization schedule (fixed-rate loans only).
Annually, your mortgage loan servicer must send borrowers a written statement that discloses:
* The right to cancel or terminate PMI.
* An address and telephone number to contact the loan servicer to determine when PMI may be canceled.
When the PMI coverage is cancelled or terminated, a notification must be sent to the consumer stating that:
* PMI has been terminated, and the borrower no longer has PMI coverage.
* No further PMI premiums are due.
The obligation for providing notice of cancellation or termination is with the servicer of the mortgage.”
PMI can be a significant amount of money every month, so know your rights and the rules on PMI, and keep track of your dollars and cents in these tough times.