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If you have less than 20% down on a house, you are required to buy PMI. Shouldn't that insurance have kicked in for many or most of these foreclosures?
Piggy backs allowed many people to avoid PMI. Instead of having a first mortgage and PMI, they had a first mortgage and a second piggy back loan to make up the difference.
What is happening is that the piggy backs are getting killed. If the house has dropped more than 20% in value the piggy back has a 100% loss. These things won't be back for a long long time.
Read the story someone posted about the guy making $9 per hour and getting a $615,000 mortgage. He had no PMI. He had first and second mortgage. The second was approx $123,000 - wiped out and the first approx $490,000. The value of the house dropped to like $350,000. That means a $265,000 loss for the banks if they could sell now. One of the underlying problems is the banks can't even measure losses because there isn't any market. Nobody really knows if the house used in the example could bring $350K because there is no market.
Lenders weren't requiring PMI.
I bought a condo five years ago, no money down and included closing costs in the loan. I do not have PMI nor do I have an escrow account for taxes and insurance.
Loan was sold to Chase Home Finance.
I had the good sense to get a 30-year fixed that I can easily afford and have never been late or missed a payment. But I was offered more expensive properties with the same conditions.
The first loan is the only one I have. No second or creative financing.
Now I REALLY feel stupid.
My loan had PMI because it was less than 20% [loan made in 2002]
I just assumed ALL loans less than 20% had it.
Makes me less sympathetic towards those who bucked the system with a piggyback loan and those who allowed it.
That's how much the rules changed ..for the worse I might add.
Really no one had any skin in the game as the mortgages eventually got sold and cut up into pieces and sold as AAA insured investments.
The buck got passed all the way from the borrower to the poor schnook who thought he bought a safe investment.
Why do you think AMBAC and MBIA got in so much financial trouble a few months ago ? This is the reason..these AAA insured investments that turned out to be subprime mortgages. It all started to unravel with the subprime bust.
What I find interesting about some of this, is that the holder of the 20% 2nd mortgage can veto a short-sale if they want. So any sales for less than 80% of the previous selling price are rejected. They become foreclosures, and they usually sell for less than they would've in short sale. Most of the time people would say this is a stupid idea. But look at it from the 2nd mortgage bank, in short-sale scenario they are guaranteed $0 in return, in a foreclosure if they even have a 1% chance of getting more money the by expectation they might get $5000 * .01 = $50, multiply by 100,000 houses and that is $5M. $5M > 0, so it makes sense for them to go to foreclosure each and everytime they would get 0 on short-sale.
I think this is the main reason I keep seeing short-sales become foreclosures, I don't think if the same bank held all the liens they would be so dumb.
That 80:20 mortgage setup was a piece of pure genius, an amazing way of dooming the housing market, just amazing. There are other things like this, but this one I think really takes the cake.
2nd mortgage -- A loan made during the time of historically unprecendent housing prices such that if the price of a house falls by 20% or more it becomes practically worthless (the loan not the house).
Now I REALLY feel stupid.
My loan had PMI because it was less than 20% [loan made in 2002]
I just assumed ALL loans less than 20% had it.
Makes me less sympathetic towards those who bucked the system with a piggyback loan and those who allowed it.
Me too....I just assumed you had to have PMI...
We moved into our new home in 2003 got a regular loan with a local bank...10 pct down 30 yr fixed PMI and escrow for taxes/insurance. Normal stuff. Of course our house was within our means and we weren't trying to get into a big house for nothing either.
Things up in my area (Grand Forks-Fargo and adjacent northwest Minnesota) are not quite as cheap as you would think especially in town. Cheaper than most of California but we did have our bubble up here too. Things went up about $40,000 from 2003 to 2007... now things have fallen about $10-20,000 off the peak. Median home price for my town went from about $130,000 in 2003 to $165,000 in 2007. Builders are building just the same as before here as the agricultural economy is very good and farmers are making decent profits despite high fuel and fertilizer costs.... western ND is oil booming with housing going up like crazy in small towns. The state of North Dakota has a huge surplus....1 billion dollar surplus as of 9/15.
It amazed me, too. I asked about PMI and how much it was, since I assumed I'd have to get it. I was told it wasn't necessary. Was also told they didn't do escrow although I have to prepay insurance a year in advance.
The company that gave me the loan sold 99% of their loans, as I was informed at closing.
They were picky about the appraisal and had to have three recent comp sales in the last 6 months that supported the price plus closing. I got a good deal and it was way under appraisal, but was told from the start, before I even started looking, that I wouldn't need PMI.
I closed in January of 2004.
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