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Private Mortgage Insurance (PMI) is one of the most common yet most widely misunderstood concepts in mortgage lending today – at least from the borrower’s viewpoint. When many borrowers hear “mortgage insurance,” they tend to thing hey – that’s great!  I’ll be protected in case I can’t pay my mortgage!” However, this mortgage insurance is not in place to protect borrowers.  Rather, it’s put into place to protect lenders.

See, in situations where borrowers are unable to put down 20 percent or more for a home purchase, lenders tend to get a bit hesitant to lend – at least with out a hedge against their bet.  Experience has shown them that borrowers with less than 20 percent down tend to default on their loans more often.  So, lenders require those borrowers to pay a monthly fee to cover an insurance policy that in turn, protects  – or insures – them in case you can’t meet your financial obligations.

How Private Mortgage Insurance (PMI) Breaks Down Here’s How PMI Works

Say you’re getting an mortgage and are prepared to put 5 percent down on your home.  The lender requires any borrower putting down less than 20 percent to pay for an insurance policy that protects them in case the borrower becomes unable to pay on the loan.  In this scenario, you’ll likely pay a set fee per month as part of  your mortgage payment to cover this insurance.

Should you at any time default on your mortgage loan, the lender would benefit by receiving the 15 percent you did not pay as part of your down payment at closing.  Remember – 80 percent.  That’s the magic number lenders feel comfortable lending without requiring PMI.

Ending Your PMI Payments

The Homeowner’s Protection Act of 1998 requires lenders to automatically suspend PMI billing once you’ve attained 22 percent equity in your home.  However, once you have paid on your mortgage to a point where you have the required 20 percent accumulated, you can and should request that the PMI fees you pay each month be suspended.

October 29, 2009

I’m always answering questions regarding the protections in place for mortgage loan borrowers, and as I feel that operating above board is really the only way to fly – I wanted to address one of the most powerful protections in place today – the Truth in Lending Act (TILA).

The Truth in Lending Act (TILA) dates back to 1968 and was put into place as a protection for consumers requiring full and clear disclosure of the terms related to credit transactions – including all costs involved.

The Housing and Economic Recovery Act of 2008 made some key changes to the TILA active as of July 30, 2009.  Though many of these changes may not be immediately apparent to most borrowers, there are a few that change the way key processes are put into place, and some that might impact when your mortgage loan closes.

Mortgage brokers and loan officers who stay on top of regulations will be able to plan for these changes, but it’s important that you are aware of them as well – just to be sure everything with your home loan goes as seamlessly as possible.

This said, financial regulations rarely remain unchanged through the years, and the TILA is no exception.

What Changes Were Put Into Place?

The changes in the Truth in Lending Acts are mainly on the new disclosure requirements for the applied mortgage loan of the consumer. The Federal Reserve Truth in Lending Regulation applies its revised laws for loans filed and submitted on or after July 30th 2009. Most lenders find the revised version of the TILA quite complicated and challenging, oftentimes causing delays for the supposedly swift transaction between buyers and sellers.

Here are some of the main changes included in the July 30, 2009 TILA update:

1. Fee Collection Limitations Imposed: Mortgage lenders are not allowed to collect fees from consumers in excess of those fees required to cover the cost of obtaining borrower credit history, until the consumer has reviewed the Truth-in-Lending (TIL) paperwork.  This paperwork includes, but is not limited to, the information found as part of the Good Faith Estimate – which discloses your loan’s annual percentage rate, finance charges, the amount financed, and the total payments you’re required to make.  TILs must also be provided on refinance mortgages.

2. 7 Day Waiting Period in Effect: Home loans are not allowed to close until 7 business days after borrowers receive the TIL. For mortgage transactions, business days run from Monday to Saturday.

3. A “You’re Not Committed” Statement has Been Added: OK, so this is not the actual name of the rule, but in essence, you’re not obligated to close the loan just because you’ve received disclosure documents or have signed a mortgage application.  Don’t let lenders pressure you into anything.  If you don’t feel right about the deal, back away.  Period.

4. New APR Change Waiting Period is in Effect: If the APR changes, a 3 day waiting period is tacked on before the loan can close.  This means that if you are quoted one APR, and then that APR changes for any reason, then the lender is required to wait an additional 3 days after you’ve received the revised paperwork before they can close the loan.  Each time the APR changes (which is hopefully not often at all), another 3 day waiting period goes into effect.

All in all, these changes are meant to provide borrowers with added protections.  In a perfect world, a handshake would seal a mortgage deal.  However, we’re just not there in today’s age.

Always demand clarity and up front disclosure from your mortgage broker.  Once it’s delivered, the obligation then falls on you to read through your loan documents and decide whether the deal makes sense to you or not.

September 21, 2009

With foreclosures taking up so much space in the headlines these days, we’ve been conditioned to think of it as the first and final step in a mortgage loan gone bad scenario.  However, there are two steps that come before the foreclosure process begins – namely: mortgage delinquency and mortgage default.

A Quick Mortgage Terms Primer

Delinquency

A mortgage borrower becomes delinquent on payment of their loan when they fail to pay their mortgage payment on the due date.  Even if we’re talking one day late, your mortgage becomes delinquent as soon as your actual payable due date is passed.  Now, your lender likely allows you a set period, which can be between as many as 15 to 30 days out, before they assess any sort of late payment fee.    But… Go up to or beyond the 30 day late mark, and your lender will send a friendly little note to at least one of the 3 major credit bureaus – letting them know you’ve been very, very naughty.

Should this happen to you, don’t worry too much.  As long as you get back on track and make nice nice with your lender, you should be in good shape.  Sure, you’ll have that 30 day late ding on your credit report, but steady payments over time from this point forward will get you back in good standing.

Should, for some reason, you fall behind in your mortgage payment beyond the 30 day period, and then on into an extended period, your mortgage will then move into default territory.

Default

Normally, when you fail to make as many as three or more of your home loan payments, your mortgage will normally move into default status.

Folks, this isn’t pretty.  Once your home loan moves into default, the Legal Team of Dewey, Cheat’em, and Howe get the nod.

They’ll likely begin foreclosure proceedings, and you’ll be required to get caught up completely on your mortgage loan if you want to avoid moving into the full foreclosure process.  Oh, and there’s also a chance that you’ll be charged fees to pay back your lender for whatever they paid their legal firm.  Yeah, I know.  You can almost hear that cash register bell ringing.

Bottom line is this…

You’re not alone if you go past the 15-day to the 30-day late payment limit.  However, be very, very diligent about getting square with your lender if this happens.  This is not a situation where you want to stuff the notice of payment due in the drawer and get back to watching that night’s UFC battle.

August 2, 2009

I just caught an Inman News story on the wire where author Matt Carter referenced a Southern California Loan Modification Company alleged to have used “high-pressure, cash-up-front” telephone sales business tactics to target distressed homeowners.

This is amazing, though I shouldn’t be surprised.  Folks are desperate out there right now, and to make matters worse – there’s a legitimate predatory risk of gran proportion lying in wait for unwary homeowners who are simply trying to do the right thing by staying in their homes and maintaining mortgage loan payments in the most responsible manner they possibly can.

I remember watching the movie Boiler Room, where a former back room gambling runner enters into, succeeds with, and subsequently exposes a high-pressure stock trading firm who used the same high-pressure, over-promising practices we see in some of these loan modification companies.

Boiler Room Meets Loan Modification Company

The story of  H.E. Servicing, the California Loan Modification in question, an individual who was shut down as a loan modification company owner by the State of California.  He then went out, found a fresh out of school attorney via Craigslist (they have to be loving this attention by the way), and started all over again. The hubris alone here is staggering.

Official Loan Modification Resource

Folks, there’s really only one place to go should you find yourselves in need of loan modification services, and that’s the official Making Home Affordable website.  There, you’ll find information designed to inform and educate you about the mortgage modification process.  Some key facts you’ll learn there include the following:

• There is never a fee to get assistance or information about Making Home Affordable from your lender or a HUD-approved housing counselor.
• Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!
• Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
• Never submit your mortgage payments to anyone other than your mortgage company without their approval.

Have You Fallen Victim to Fraudulent Home Loan Modification Practices?  We Want to Know…

Have you or someone you know fallen victim to a loan modification organization who promised to save your home, only to have cost you thousands?  Drop a line here to let us know.

The more we talk about these back alley boiler room operations, the better informed the general public will be.

July 25, 2009