Return of Private Mortgage Insurance? (loan officer, premium, approved, foreclosure)

[magellan]

I haven't read anything related to this online yet, but the recent mortgage troubles, foreclosure and short sales has me wondering: are we going to see the massive return of Private Mortgage Insurance?

For those who aren't completely familiar with it, Private Mortgage Insurance (PMI) is an insurance policy taken out by a mortgage company to protects its interests if a borrower defaults on a loan, and it is paid for BY the borrower. If a bank has to foreclose on a home, the difference between what they should have received from the borrower and the amount they can sell the house for is paid to them as a "claim". The bank comes out alright. It generally has been required for borrowers coming in with less than 20% down, until fairly recently.

In the last 5 years or so, everyone has been decrying PMI as "evil" and has been talking people with low down payments into doing "piggyback" home equity lines or loans to make up for the 20% needed (you are borrowing your down payment against the appraised value of your home).

Even this July Forbes article is talking subprime borrowers into getting into risky piggyback loans (risky now because values are stagnating or declining):
Six Reasons To Avoid Private Mortgage Insurance - Forbes.com

NOW, with the massive number of foreclosures going on and banks, mortgage companies and mortgage investors getting into deep trouble, does anyone foresee the return of requirements for PMI again? I know banks liked the piggybacks and 80/10/10's because it was another revenue stream for them, whereas PMI revenue went to an insurance company. But will continued losses and defaults cause them to re-look at their strategies?

Secondly, will banks start to go back and re-assess subprime and low down payment loans, even ones in good standing, and start requiring those borrowers to enroll in PMI? Can they do that even?

When I say "return", I mean will it be "mainstream" again.


(I posted this originally in the RE section, but maybe it's more appropo here)

[TimtheGuy]

Secondly, will banks start to go back and re-assess subprime and low down payment loans, even ones in good standing, and start requiring those borrowers to enroll in PMI? Can they do that even?

Of coarse not.

[magellan]

Originally Posted by TimtheGuy

Of coarse not.

I'm glad you're so confident on that last point. Is there something in a standard mortgage note that would prohibit them from doing so? Or a federal/state law?

[DavidS827]

Tim is right. There is no way they could go back and change the terms of the loan agreement.


...to answer your question...I think MI will become more popular. Especially once loan officers and realtors realize that, generally speaking, you can get loans with MI approved easier than you can loans without MI. I also believe that programs like Lender Paid MI/Financed MI will gain some traction as they develop.

[lchoro]

Only if you try to refinance.

[Stockholmaren]

That is correct, if PMI wasn't required to begin with, the bank can't go back and require it later.

Also, the banks do make money on PMI, they get a cut from the insurance company each month based on the premiums collected.

[magellan]

Thanks for the info guys! That's good to hear that banks can't come back and require PMI on an existing loan. I have no fears personally because our equity is so large, but I know a lot of people who aren't in as good of a situation.

I too agree that we'll see a rise of PMI again due to the mortgage mess. Banks will only be able to sustain so much of a hit before they drastically change lending practices. And I don't think we've seen close to the bottom of this mess.

Hey, what if someone on an ARM who had a low down payment goes to refinance (who doesn't currently have PMI)? I'd imagine that opens the door to new MI requirements? Especially if the appraisal comes back lower than expected?

[Stockholmaren]

Originally Posted by magellan

Thanks for the info guys! That's good to hear that banks can't come back and require PMI on an existing loan. I have no fears personally because our equity is so large, but I know a lot of people who aren't in as good of a situation.

I too agree that we'll see a rise of PMI again due to the mortgage mess. Banks will only be able to sustain so much of a hit before they drastically change lending practices. And I don't think we've seen close to the bottom of this mess.

Hey, what if someone on an ARM who had a low down payment goes to refinance (who doesn't currently have PMI)? I'd imagine that opens the door to new MI requirements? Especially if the appraisal comes back lower than expected?

Yes, the Bank would definitely be able to require MI at that time and they probably will unless you're going to another bank and they want to win your business.

[Daddys///M3]

Originally Posted by magellan

Thanks for the info guys! That's good to hear that banks can't come back and require PMI on an existing loan. I have no fears personally because our equity is so large, but I know a lot of people who aren't in as good of a situation.

I too agree that we'll see a rise of PMI again due to the mortgage mess. Banks will only be able to sustain so much of a hit before they drastically change lending practices. And I don't think we've seen close to the bottom of this mess.

Hey, what if someone on an ARM who had a low down payment goes to refinance (who doesn't currently have PMI)? I'd imagine that opens the door to new MI requirements? Especially if the appraisal comes back lower than expected?

I believe that we are already seeing a rise in PMI, due to the fact that lenders are tightening up or eliminating their piggyback programs. However, you must remember that PMI companies are actually tightening up their guidelines as well, so ironically due to the new and ever changing PMI guidelines many loan programs that may still be available will never fund because the PMI companies will not insure it. These guidelines relate to occupancy type, credit score, and documentation type. Minimum FICO's are being raised, greatly increased qualification requirements for reduced documentation loans are being required, and investment properties are not being insured.

[williambrown]

Hi
You have done a good question, it’s really interesting. If you get any good reply, so please let me know. So I’ll also get some good idea.
Thanks for your future help.