<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Originally posted by fmalgiog:
I bought my home in NEY YORK STATE for $158,000 3 years ago and took out a mortgage for $150,000. The house market in my area has been booming over the past few years and I know that my house is now worth about $185,000. The balance owed on my mortgage is $145,000. In order to meet the 20% equity rule for ending my PMI payments the value of
my house would have to be $182,000. I called up my bank to tell them I wanted to drop my PMI because my house had appreciated enough to satisfy the 20% equity. They told me that I had to pay 20% of the mortgaged amount and not the house value. Is this true. If not, what government agency can I call to straighten this matter out?
P.S. The mortgage lender is a Credit Union in
NEW YORK STATE.
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Yes, you can cancel your private mortgage insurance - -
If you're a homeowner, you'll want to know when you can free yourself from private mortgage insurance (PMI) payments.
Created so that people can buy homes without having to first amass large amounts of cash, PMI is a strange kind of animal. Mortgage lenders force homebuyers to take out PMI if the buyers put less than 20 percent down when they take out the mortgage. It protects the lender against losses if a homeowner defaults on the mortgage.
Unlike other kinds of insurance, PMI does not benefit the person who pays for it; it benefits the lender instead. On average, homeowners pay between $240 and $1,200 a year in PMI premiums.
The new PMI law - -
The Homeowners Protection Act of 1998 allows homeowners with good payment records to request that your PMI be cancelled once you have built up 20 percent equity in your house. It requires that PMI be automatically terminated once that equity rises to 22 percent. It also requires lenders to disclose more information about PMI, what it does, and when you can cancel it. The law applies to mortgages taken out on July 29, 1999, and after.
What the new law doesn't do - -
Only PMI policies written on or after July 29 are subject to the automatic-termination provision. Furthermore, the bill doesn't cover mortgage insurance provided through the Federal Housing Administration, and certain types of loans considered to be "high-risk" may have different provisions.
About 1.5 million of the nation's 4,970,000 home buyers were saddled with private mortgage insurance (PMI) in 1998. And the policy doesn't even benefit those who pay for it! PMI is a special policy that covers the lender — not you, the buyer — in case you default on the mortgage.
The coverage is not cheap, and it's not always necessary.
A homeowner's PMI outlay can be expensive: A year's worth of premiums might add up to the cost of a 13th mortgage payment each year — without the tax benefits afforded a real mortgage payment.
What's worse, some homeowners unwittingly pay the premiums years after it's necessary because lenders don't always tell customers they are no longer considered a default risk. Even if you do find out that you don't need to pay the premiums anymore, lenders might make you jump through hoops — at your expense — to get the insurance dropped. Fortunately, a new law changes that.
Lenders require PMI for down payments of less than 20 percent because those buyers tend to have higher default rates on their mortgages.
Lenders argue that, without PMI coverage, millions of buyers — many of them first-timers — would be unable to get their slice of the American Dream.
Legislation introduced to halt abuses - -
President Clinton signed into law the Private Mortgage Insurance Act on July 29, 1998. This reform should be a boon to anyone getting a mortgage after the law becomes effective on July 29, 1999.
Under the new law, you must be informed, in writing, when you close on your house that you have private mortgage insurance, what it is, and how and when you can cancel it. After that point, your lender must continue to notify you on an annual basis about when you can cancel your PMI.
The law also says that you can contact your mortgage holder when you've paid off 20 percent of the original value of the home and ask them to cancel PMI. Your mortgage holder has the option of canceling it, but as long as your payment record is good, you shouldn't have a problem ending it.
Not sure when you'll reach that magical 20 percent mark? Don't worry, another provision of the new law states that a mortgage holder must automatically cancel PMI when you hold 22 percent equity in your house. If it isn't cancelled, the lending institution is in for a world of hurt: They are subject to fines and payment of your legal fees, and they must return any premiums you paid beyond what you really owed.
A mortgage holder must automatically cancel PMI when you've reached 22 percent equity in your house.
The Federal National Mortgage Association (Fannie Mae) announced it will require institutions that service its loans to disclose to consumers, at the time the loan is originated, information about PMI and how it can be canceled when certain conditions are met. That disclosure would have to be made annually as well.
While the new law applies only to mortgages taken out after July 29, 1999, Fannie Mae has instituted some PMI reforms that apply to all mortgages. It will have the institions that service its loans automatically cancel PMI once the midpoint of the length of the mortgage is reached. This will be optional until Jan. 2, 2001, at which point it becomes mandatory. The Federal Home Loan Mortgage Corp. (Freddie Mac) will be enforcing this policy as well.
The impact will be widespread. One in five mortgages are held by Fannie Mae, while Freddie Mac holds one in six; others in the mortgage lending industry often follow Fannie Mae's lead.
An exception to the law are loans granted by the Federal Housing Administration. Generally, the government-run mortgage insurance program must be paid for the life of the loan.
Too much of a good thing?
The Mortgage Insurance Companies of America (MICA) says it doesn't track the amount of all the PMI premiums collected. But, like the dollar value of mortgages protected by PMI, the industry's coffers are bulging. When MICA first started keeping tabs in 1992, $284 billion worth of nongovernment-insured mortgages were covered by PMI. Six years later, the figure doubled to $559 billion.
"That [growth in PMI insured mortgages] also reflects growth in the mortgage industry as well as growth in mortgage insurance," explains MICA spokeswoman Ellen Schweppe. "1998 was an unusual year. Interest rates were at the lowest levels in a generation, and people took advantage of that." The number of home buyers, and especially the number of PMI policies written, jumped substantially in 1998 — 13 and 51 percent respectively.
Lenders concede PMI is good for them — it provides default protection for up to 20 to 30 percent of a lost mortgage. They also say it's good for you, too, because it allows lenders to make loans they otherwise wouldn't.
Even though you pay the premiums, you can't even get a copy of the PMI policy.
Under the PMI home-purchase plan, some home buyers can also purchase larger, more expensive homes than they could without the coverage. Young, first-time home buyers, and other savings-poor-but-income-rich buyers stand to benefit most, because they will be able to buy a home without having to spend a long time saving up money for a 20 percent downpayment.
"That's basically the purpose of insurance. It actually makes it possible for a lender to make a loan they otherwise couldn't," said Schweppe.
PMI grumblings - -
In addition to problems of those who pay for PMI longer than necessary, hazy disclosure practices leave some homeowners confusing PMI coverage with mortgage life insurance, which pays a beneficiary for all or part of a mortgage if the borrower dies. (For more on mortgage life protection see, Mortgage protection insurance offers limited benef
