PMI Mortgage Center

Archive for September, 2005

 by: Dan Farrell

If you have a bad credit rating, then you might find that your ability to get financing, loans, and even some jobs is greatly diminished.
Once you have a bad credit rating, it might seem like there’s nothing that you can do about it… but you don’t have to believe that. It’s not as difficult as you might think to get by with a bad credit rating; with a little work and time you can even repair it! Of course, before you do that it’s important to realize exactly what a credit rating is.

Every time a lender or other creditor makes a report concerning your payment history to them, this report affects your credit score.
Your credit score is a numerical indication of the positive and negative reports that you’ve received from creditors and lenders; if the number is high then you have a good credit rating, and if it’s low then you have a bad credit rating.

Basic credit repair

Get organized! Make a folder for all your correspondence offline and online. You will have to do some snail mailing but in most cases you can work your repair online.

In the U.S. a 630 rating will qualify you for a mortgage. You can still get credit with a lower score but not at a premium interest rate.
In fact, even a chapter 11 bankruptcy (erases all negative credit) is not as bad as many think. I am not advocating filing for bankruptcy (the laws have changed so you might have to set up a re-payment schedule if your income allows) but for those caught between a rock and hard place, unemployment, medical crisis, divorce…many good reasons for finding yourself unable to pay your bills, filing for bankruptcy is a god-send.

Many times, you will find creditors very eager to extend credit because you don’t have any debts! It is the irony of the debt-income picture… if you have a steady income, you will have no problem getting credit cards, auto loans and even a mortgage.

So, don’t despair, your situation is not as bad as you think! You will find a way to less worry, more sleep and better relationships.

To begin correcting your credit, the important thing to do is obtain your credit report and study it. Mark all the negative items.

Most unsecured credit, mostly credit cards, can stay on your report for 7 years. If you find any over that, write to the credit bureau and ask them to remove it. They are required by law to research and report back within 30 days.

If they don’t, you can threaten them with a letter to the Better Business Bureau or Federal Trade Commission.

Find any other negative items and determine if they are correct. If not, write the bureau and tell them its not your debt.

Even if you aren’t sure, ask the credit bureau*s to investigate. Many times, they will not be able to verify the debt because the credit card company, auto loan company or other creditor won’t get back them within 30 days (required by Fair Credit Act).

If you are a homeowner, you will want to be aware of a law that establishes rights for homeowners and rules for lenders regarding private mortgage insurance (PMI) cancellation. With this knowledge, you may eliminate premiums you may be paying unnecessarily.

What Is PMI?

PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

Benefits of PMI

PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.

New PMI Requirements

A new federal law, The Homeowner’s Protection Act (HPA) of 1998, requires lenders or servicers to provide certain disclosures concerning PMI for loans secured by the consumer’s primary residence obtained on or after July 29, 1999. The HPA also contains disclosure provisions for mortgage loans that closed before July 29, 1999. In addition, the HPA includes provisions for borrower-requested cancellation and automatic termination of PMI.

Why a Change in PMI Requirements?

In the past, most lenders honored consumers’ requests to drop PMI coverage if their loan balance was paid down to 80 percent of the property value and they had a good payment history. However, consumers were responsible for requesting cancellation and many consumers were not aware of this possibility. Consumers had to keep track of their loan balance to know if they had enough equity and they had to request that the lender discontinue requiring PMI coverage. In many cases, people failed to make this request even after they became eligible, and they paid unnecessary premiums ranging from $250 to $1,200 per year for several years. With the new law, both consumers and lenders share responsibility for how long PMI coverage is required.

The Homeowner’s Protection Act (HPA) of 1998

What Loans Are Covered?

Generally, the HPA applies to residential mortgage transactions obtained on or after July 29, 1999, but it also has requirements for loans obtained before that date. This new law does not cover VA and FHA government-guaranteed loans. In addition, the new law has different requirements for loans classified as “high-risk.” Although the HPA does not provide the standards for what constitutes a “high risk” loan, it permits Fannie Mae and Freddie Mac to issue guidance for mortgages that conform to secondary market loan limits. Fannie Mae and Freddie Mac are corporations chartered by Congress to create a continuous flow of funds to mortgage lenders in support of homeownership. As of January 1, 2000, mortgages in amounts of $252,700 or less are considered conforming loans. For non-conforming mortgages, the lender may designate mortgage loans as “high risk.”

What Is a Residential Mortgage Transaction?

There are four requirements for a transaction to be considered a residential mortgage transaction: (1) a mortgage or deed of trust must be created or retained; (2) the property securing the loan must be a single-family dwelling; (3) the single-family dwelling must be the primary residence of the borrower; and (4) the purpose of the transaction must be to finance the acquisition, initial construction, or refinancing of that dwelling.

How Do You Cancel or Terminate PMI?

Cancellation

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Automatic Termination

Under HPA, mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan. If the loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.

For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.

Final Termination

Under HPA, if PMI has not been canceled or otherwise terminated, coverage must be removed when the loan reaches the midpoint of the amortization period. On a 30-year loan with 360 monthly payments, for example, the chronological midpoint would occur after 180 payments. This provision also requires that the borrower must be current on the payments required by the terms of the mortgage. Final termination must occur within 30 days of this date.

WALNUT CREEK, Calif.–(BUSINESS WIRE)–Sept. 2, 2005–PMI Mortgage Insurance Co. today announced it will provide disaster relief for borrowers experiencing financial hardship as a result of damage caused by Hurricane Katrina. Additionally, the PMI Foundation will donate $50,000 to the American Red Cross to support relief efforts, as well as support employee donations to organizations serving the relief effort through its matching gifts program.

“PMI is committed to helping hurricane victims stay in their homes,” said Roger Haughton, Chairman and CEO of The PMI Group, Inc (NYSE:PMI). “Right now, homeowners need to focus on repairing damage and rebuilding lives after this tragedy. PMI will help make that possible by assisting in the clean-up effort and providing disaster relief options to borrowers.”

PMI will work with lenders and borrowers in regions declared a federal disaster area by the Federal Emergency Management Agency (FEMA) to avoid mortgage delinquency and foreclosure. PMI recognizes the same payment relief options offered by Fannie Mae and Freddie Mac, such as suspending or reducing mortgage payments, waiving late fees, and not reporting delinquencies caused by the disaster to credit bureaus. PMI’s Disaster Relief Policy outlines standard workout programs and procedures.

The PMI Foundation’s relief donation helps support the nearly 2,000 volunteers mobilized to the Southeast to provide food, water and shelter to affected residents. The American Red Cross is currently operating more than 250 shelters across seven states, providing a haven for nearly 42,000 evacuees — many of whom have been left homeless by Katrina.

Contact a PMI Servicing and Claims Specialist at 800-288-1970 for additional disaster relief information. Specialists will conduct case-by-case evaluations to establish payment alternatives for borrowers affected by the disaster.

PMI’s Disaster Relief policy is available at http://www.pmigroup.com/lenders/claims.html.

PMI Mortgage Insurance Co.

PMI Mortgage Insurance Co., a subsidiary of The PMI Group, Inc. (NYSE:PMI), is a leading U.S. residential mortgage insurer, licensed in all 50 states, the District of Columbia, and Puerto Rico. Private mortgage insurance expands home ownership opportunities by enabling borrowers to buy homes with down payments of less than 20% and facilitates the sale of low down payment mortgages in the mortgage capital markets. PMI is incorporated in Arizona and headquartered in Walnut Creek, CA. For more information: www.pmigroup.com.

The PMI Foundation

The PMI Foundation is a private nonprofit organization established by The PMI Group, Inc. (NYSE:PMI). Its goal is to foster home ownership and provide access to affordable housing for underserved areas. The PMI Foundation does this by supporting national and local organizations that create housing opportunities and help revitalize neighborhoods in communities throughout the United States and around the world. The PMI Foundation is located in Walnut Creek, CA. For more information: www.pmigroup.com.

Premium prices vary. They are based on the size of the down payment, type of mortgage and amount of insurance coverage. Premiums typically are folded into your monthly mortgage payment.

The range for a median priced home is $50 to $80 per month (in 2001, the national median price for a single family home was $147,500). You can pay the premium up front and finance it as part of your mortgage. Lender-paid policies also are available, but they result in a higher interest rate on the mortgage.

Apply for a loan and avoid PMI today!

PMI payments can be dropped from your mortgage when your LTV falls below 80%. Most lenders will not automatically drop your PMI though.

It is the borrower’s responsibility to contact the lender and pay for a real estate appraisal. If the appraisal shows that your loan has fallen below 80% LTV, then your PMI will be dropped.

Refinance your home, lower your rate and stop paying PMI today!

The easiest way to avoid PMI is to invest a 20 percent down payment at the time of the loan. Lenders will not require PMI when the loan to value (LTV) is 80% or less. However, coming up with 20 percent down payment is very difficult for many borrowers. Another way to avoid PMI is to apply for subsidiary financing (home equity loan or line of credit) and close it at the same time as your first mortgage. These types of programs are referred to as 80/20, 80/10/10, 80/15/5, etc.

Another way to avoid PMI is to use a subprime or B-Credit lender. These loans will often have higher interest rates, but at least interest is tax deductible (where PMI is not). Find the no PMI program that’s right for you!

PMI is Private Mortgage Insurance which insures the lender against loss if the borrowers defaults on the mortgage loan. PMI is usually required when the borrower’s down payment or equity is less than 20% of the loan value. Of course, not all lenders require PMI, although those that follow the Fannie Mae and Freddie Mac guidelines for loan approval do require PMI.

The mortgage insurance is usually escrowed into your mortgage payment, and when a borrower reaches 20% equity, they no longer need mortgage insurance. PMI is the equivalent of FHA or VA insurance on government mortgage loans. Apply today and see if you can avoid PMI.