No they did not get PMI in just about all of the 100% financed cases. Most of the people financed with 2 loans. A conforming loan, and then a second mortgage. This was a common way to get around PMI.

SD Realtor

I think this “scam” should be illegal. PMI is there for a reason when you finance more then 80% of a home. Just because it isn’t all tied to the “1st” doesn’t mean the economic situation is any different.

UGH

SDR

Wasn’t the 80/20 arrangement just as much about getting a loan at all, as it was about avoiding PMI? The risk gets split between two lenders or even the same lender with two loans and the second being at a considerably higher interest rate to offset the risk. The loan overall wasn’t cheaper than a loan with PMI because the second had pretty expensive terms? Does that ring a bell or do I need my bell rung,again ;)?

Hi Rus,

The rationale behind the reason that brokers encouraged buyers to get two loans instead of a single loan with PMI was IMO that PMI is non deductible so getting two loans allows you a better deduction.

However, I would bet that as you intimated, if you run the numbers, you may very well find that a single loan with PMI actually saves money for the buyer, especially if you account for origination fees of a single verses two loans. I think each case would vary depending on the strength of the buyer and the prevailing rates of the time and of course the broker.

In terms of simply qualifying for the loan, I don’t see how there would be any difference at all. In each case you would have to disclose the exact same information to each underwriter. So if you got the dual loan case with a single lender, or a single jumbo loan with PMI with that same lender, or a conforming loan with that lender and a second with someone else, the underwriters would all get the same information so I don’t think that would have bearing on whether the buyer gets approved or not…

No factual evidence in that response… just me guessing so I would surmise that someone will ring my bell and prove me wrong…

SD Realtor

radelow,

What is the “scam” in that? The investor holding the 2nd is like an unsecured creditor. How much worse is he compared to a credit card issuer? As long as he clearly understands, that he may lose his “investment”, I don’t see a problem. After all, that is why the interest rate is higher. It is like saying gambling should be made illegal because you mostly lose.

“In terms of simply qualifying for the loan, I don’t see how there would be any difference at all. In each case you would have to disclose the exact same information to each underwriter.”

SDR
I just meant the willingness of lenders to give them because for the first it was less risk than a higher LTV and the second was more reward for the risk. I think I recall sometimes the same lender carried both so that would definitely be about the lender wanting the money and the risk instead of PMI. Perhaps PMI underwriters would have said no way to half of these loan/borrower combinations anyway?

No need to answer the topic just got me wondering. Maybe one of the mortgage guys here knows but they aren’t always exposed to what is going on behind the scenes either.

Anyway thanks for answering. It’s not a big deal of course.
Hope you are having a good weekend.

Ah I see…Actually that is a good point Rus…

I wonder how much more diligent the PMI underwriters are/were from 2000-2006 compared to the loan originating underwriters.

SD Realtor