PMI question

[moneymaker]

With the last bubble burst I’m sure people that were paying PMI ended up paying it longer than expected, but let’s say one puts down 20% on a 500K house, then the house drops in value to 300k, can the bank reinstate PMI if it was not there in the beginning? Seems to me that they could not and PMI is only reinstated if a refi is done. Are people getting around the PMI like they were in the last bubble when a second was taken out to avoid it. I’m not paying PMI, but to me the whole concept just seems wrong,why should the buyer (who has little equity) subsidize the risk of the wealthy (banks).I guess the next step would be fricking insurance why should I pay all the insurance on something I only own a piece of, in other words the banks are getting a free ride by not paying insurance on their assets. Seeing as the majority of people in CA do not have earthquake insurance I think a Big One would wake the banks up to the fact that maybe they should be paying for it.

[CA renter]

It’s probably better to get the info from HLS, but in case he doesn’t respond, here’s how I understand it…

If you don’t already have mortgage insurance (MI), then you should not have to pay it even if prices drop enough to put you entirely underwater on the mortgage. MI is agreed to up front. If you don’t have it already, you should not ever have to pay it for the life of the mortgage.

In theory, I suppose a lender to add some sort of clause to the original mortgage documents that would require MI if the owner’s equity fell below some percentage, but I’ve not heard of that being done before.

[HLS]

Nothing can ever be ‘reinstated’ to something that never existed.
PMI cannot be added to a loan at any point in the future to an existing loan. With FHA it’s called MIP/MMI.

Refinancing with less than 20% equity will add mortgage insurance.
In some cases it can make sense for someone with a higher rate without mortgage insurance to refinance
into a loan with mortgage insurance at a lower rate.

VA loans have no mortg ins. Veterans deserve a break. With other loans it’s possible to have a program called ‘Lender Paid’ mortgage insurance (LPMI)

‘Banks’ aren’t getting a free ride.
What most people don’t seem to understand OR want to believe is that a ‘bank’ doesn’t own your loan nor did they lend you their money for 30 years.
BANKS HAVE DIVISONS THAT ARE MORTGAGE BROKERS.
They make money by originating loans.
Many people falsely believe that all banks have great mortgage rates or are easier to deal with.

There is one guy that is given credit for changing the way mortgage money was created. Lewis Ranieri.
http://en.wikipedia.org/wiki/Lewis_Ranieri

Most long term loans are sold off into ‘mortgage backed securities'(MBS) and are not owned by ‘banks’. It’s a complicated system.
GNMA (Ginnie Mae) guarantees the payment of principal & interest on MBS. http://en.wikipedia.org/wiki/Government_National_Mortgage_Association

Why are banks viewed as big bad major crooks ?
Nobody has to use a bank.
Nobody has to pay credit card interest.
They offer a service that comes with costs.

If you think that there is no risk with low down mortgages and like the current interest rates and don’t think that there should be PMI,
you could buy MBS and hope that you receive the return that you are promised.

IMO it would be better if mortgage insurance didn’t exist and 20% down was required to a buy a house.
Houses would sell for MUCH less and fewer people
would be ‘home owners’

I agree with you that a (poor) buyer should not have to subsidize the risk of the wealthy(banks)
… I don’t think that the (poor) buyer who has little equity should be allowed to buy a house in the first place. That’s the concept that is wrong.

[moneymaker]

Thank you HLS
I knew about MBS’s but it is easy to forget about what goes on behind the scenes when one does not work in the industry. Do you think MBS’s are here to stay, the reason I ask is because weren’t they the reason for the last bubble to begin with? Liar loans with the fox watching the hen house. Excellent post!
I used an FHA loan 6 years ago (3% down) refinanced twice and now have a 15 year (3.5%) no PMI loan with a mortgage cheaper than rent “that I can afford”, so the system can work, it worked for me.

[HLS]

[quote=moneymaker] now have a 15 year (3.5%) [/quote]

MM,
If you’re interested, contact me privately for a free analysis of your current situation.
IF you qualify to refinance again, depending on your loan balance, you might be able to pay your loan off several years earlier at ZERO cost to you.

I don’t care if you do it through me or not,
I’d like to look at your situation.
Hundreds of millions of dollars is being wasted in interest by good people who don’t see the option.
There’s no pressure and no obligation.
I’ll give you the facts and you can decide what to do.

[HLS]

MBS are definitely here to stay.
They were not the reason for the bubble.

The reason for the bubble was REALLY simple…..
The entitlement attitude(& ignorance) of people wanting to buy something that they could not afford to pay for
BUT were willing to take risks that they did not understand.
Stated income was not the problem. Nothing down was the problem.
You cannot blame people who offer/create a service/product that people want to abuse.
The pity party for ‘victims’ is appalling.

On a micro level it’s no different than student loans or credit card debt but the principal amounts
are generally much lower.

Our entire system is a fragile house of cards.
It’s gone global. Debt is a disease that’s easy to catch. Makes ebola look like a tiny itch.
The entire premise is beyond scary if you really understand what has happened.

The entire concept of ‘Buy now, pay later’ is out of control. The faith in the 401K system is out of control.
The complacency & security & faith in the govt to fix problems that most people have is completely false & dangerous.

[spdrun]

The reason for the bubble was REALLY simple…..
The entitlement attitude(& ignorance) of people wanting to buy something that they could not afford to pay for

ding-ding-ding, we have a winnah! This being said, I think there are a few legit reasons for non-payment of a mortgage, namely things like death in the family, medical emergency, or loss of job, all of which should result in some level of understanding from the servicers. But a lot of the people going into foreclosure don’t have those particular problems.

[HLS]

It’s ridiculous to blame lenders/banks etc for the mess.

That’s like blaming a restaurant or liquor store owner for selling alcohol to an alcoholic
OR blaming stores that sell cigarettes to someone that gets lung cancer etc.
You can also kill someone with a steak knife, or a big plastic bag. Are the providers guilty of anything ?

Of course there are legitimate reasons for foreclosure and people should understand their options but NEVER EXPECT to be allowed to keep a home that they cannot afford.

The idiots in congress that pretended like they would fix the ‘problem’ were the same clueless idiots that allowed the problem to happen.

[spdrun]

I mostly agree, but I do think that banks/servicers should show some compassion when exigent circumstances arise.

[bewildering]

“VA loans have no mortg ins. Veterans deserve a break.”

I heard that VA loans are the worse type as the fees and rates are horrible. Maybe things have changed.

[HLS]

[quote=spdrun]I mostly agree, but I do think that banks/servicers should show some compassion when exigent circumstances arise.[/quote]

WHY ?? 😉
who is going to decide how bad someone’s situation is AND what degree of help they should get.
Who shall decide what ‘exigent’ circumstances are ?

It’s a slap in the face to people who work 2 or 3 jobs and live a life of stress but pay their bills without expecting any help.

I know people with loans at 6-8x their annual income, *living way beyond their means*
AND I know people who opted for loans at 2-3X their annual income.
***Why should the former get any ‘compassion’ if they run into a problem ??

Actually there IS ‘compassion’
It varies state by state.
In CA as a Trust Deed (NON judicial foreclosure)
state, you normally have a 6 month window that you can catch up on late mortgage payments (+ late charges etc) before getting foreclosed on.
Isn’t that enough ?

In CA you can go 5 years without paying property taxes before tax liens become a problem.

Many states have a ‘Right of Redemption’
which means that even if you get foreclosed on, you may be able to get the house back by paying what was owed.
IT’S INSANE in some states that window could be up to 2 years! (Tennessee)

[HLS]

[quote=bewildering]”VA loans have no mortg ins. Veterans deserve a break.”

I heard that VA loans are the worse type as the fees and rates are horrible. Maybe things have changed.[/quote]

I wonder who told you that….
The same people who say that credit cards are evil ?
Some loan people might say that because they cannot do VA loans (??)

VA loans are amazing. Rates are VERY good and although there are some fees, they can be factored in to the rate and it still offers an excellent loan for a qualified borrower.
Nothing down, limited closing costs and no mortgage insurance. Available with crappy credit score, 620+ (SIX HUNDRED TWENTY)
There are different entitlements.

[montana]

[quote=spdrun]I mostly agree, but I do think that banks/servicers should show some compassion when exigent circumstances arise.[/quote]

I completely disagree. A borrower signs a note that explains exactly what they are agreeing to. If they fail to meet their end of the bargain then why should there be compassion? The bank, investor or lender has provided their capital for a mortgage, auto, credit card or student loan and they get to dictate the terms of the agreement. They underwrite the credit and if the borrower fails to perform they seize the collateral and send you to collections. A borrower should be prepared for exigent circumstances, they should have a cash reserve that can get them through any hard times, i.e. loss of job, etc.

I’m tired of the whining and complaining of the “predatory” lenders, especially in today’s environment how everybody is underwritten. I didn’t buy my first home until I could afford one. I put 20% down and had another 20% sitting around in cash and equivalents. I had no auto loans, student loans, or credit card debt. I have a HELOC that is not drawn upon. People need to be fiscally responsible and not ask to borrow money unless they are willing to pay for it. If you are a bad credit, be ready for high rates and high origination fees as the lender needs to ensure to cover for your sorry ass when you default.

If you want somebody to help you out for making a bad decision and get through a tough time, go to your family and friends. There is no need for a lender to provide compassion, they are in the business of creating margin, not losses. A servicer is engaged by the lender to perform their role, collect payments and produce a statement, not to listen to sob stories.

[CA renter]

[quote=montana][quote=spdrun]I mostly agree, but I do think that banks/servicers should show some compassion when exigent circumstances arise.[/quote]

I completely disagree. A borrower signs a note that explains exactly what they are agreeing to. If they fail to meet their end of the bargain then why should there be compassion? The bank, investor or lender has provided their capital for a mortgage, auto, credit card or student loan and they get to dictate the terms of the agreement. They underwrite the credit and if the borrower fails to perform they seize the collateral and send you to collections. A borrower should be prepared for exigent circumstances, they should have a cash reserve that can get them through any hard times, i.e. loss of job, etc.

I’m tired of the whining and complaining of the “predatory” lenders, especially in today’s environment how everybody is underwritten. I didn’t buy my first home until I could afford one. I put 20% down and had another 20% sitting around in cash and equivalents. I had no auto loans, student loans, or credit card debt. I have a HELOC that is not drawn upon. People need to be fiscally responsible and not ask to borrow money unless they are willing to pay for it. If you are a bad credit, be ready for high rates and high origination fees as the lender needs to ensure to cover for your sorry ass when you default.

If you want somebody to help you out for making a bad decision and get through a tough time, go to your family and friends. There is no need for a lender to provide compassion, they are in the business of creating margin, not losses. A servicer is engaged by the lender to perform their role, collect payments and produce a statement, not to listen to sob stories.[/quote]

On an emotional level, I agree with spdrun, but from a purely rational perspective, I agree with HLS and Montana. If we make exceptions for non-payment of mortgages, shouldn’t we also make exceptions for renters (who are traditionally more vulnerable) when they can’t afford to pay their rent for a “good” reason? Should they be allowed to stay in their rentals without paying rent for years and years on end because they lost their jobs or got a divorce? How about car buyers or people who max out their credit cards? People are supposed to build a cushion for themselves for just these reasons, but since so few do, prices are pushed up for everyone…making it more difficult for more responsible people to live within their means.

Ultimately, the idiot buyers/borrowers who stretched to buy — not so much what they couldn’t afford to buy under normal circumstances, but at prices they couldn’t afford when there is a bubble due to speculation and exuberance — make it more difficult for responsible buyers/borrowers to buy affordable homes. The idiots and speculators are the ones who push prices up to such an extent that homes become unaffordable to “regular” people. And they’re the ones who are responsible for the resulting crash, as well.

But I disagree with HLS regarding the culpability of lenders. They are every bit as much to blame as the borrowers. We can’t all be experts in every field, so naive borrowers rely on the advice of “expertise” of mortgage lenders/brokers when they transact these deals. As we all know, many lenders/brokers were misleading about the products they were selling. I’ve seen and heard it myself when I was trying to warn others about the loans they were getting into.

Both borrowers and lenders are to blame, and both should have been allowed to fail so that they could (hopefully) avoid making such stupid decisions in the future. As it stands, with borrowers made out to be victims of unscrupulous lenders, and lenders being painted as victims of an “economic crisis” (which they helped cause…but that’s not often said) or unscrupulous borrowers, we will all have to pay the price for the damage that will result in the future. The crisis is not over yet, we’re just growing it some more and pushing it further into the future.

[spdrun]

To be clear, I think that the majority of foreclosures are justified and should go forward as quickly as possible.

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