by donsullie » Mon Jul 06, 2009 06:10 pm
Because of the housing downturn and losses in our 401 we might have to let our house go into foreclosure. Will having this insurance protect the mortage co and the borrower?
Posted: Mon Jul 06, 2009 08:45 pm Post Subject:
Maybe if you ask one more time it will make sense to be asking this in an auto insurance forum.
The answers are No. No. and No.
Also, how on earth could losses in your 401 (I assume you mean 401(k)) result in not being able to pay your mortgage? That makes no sense.
Good luck.
Posted: Mon Jul 06, 2009 11:29 pm Post Subject:
I don't get it either. What do your 401(k) losses have to do with your mortgage? Were you using the 401(k) funds to pay for your mortgage? Should I assume that you are receiving payment from your retirement plan and those payments are decreasing due to the market?
Why have you not put your retirement plan dollars into something more conservative? If you're retired and using the funds, they need to be in a preservation and not growth mode.
Can you give us some more insight?
InsTeacher 8)
Posted: Tue Jul 07, 2009 02:47 am Post Subject:
PMI is insurance to benefit the mortgage company. If you default and the PMI carrier pays the mortgage company, the PMI carrier can come after you for what they paid.
Posted: Tue Jul 07, 2009 07:35 am Post Subject:
Hi Donsullie, the PMI is taken out to protect the lender in case the borrower defaults on the mortgage loan. It'd not under any circumstances protect the borrower. And, Tcope is also right the PMI carrier might come after you in the future to recover what they would pay to the mortgage lender.
Posted: Tue Jul 07, 2009 11:26 am Post Subject:
I doubt there's any 'might' to it. The PMI carrier will come after you for repayment.
Please help us understand this portion of your post
Because of the housing downturn and losses in our 401 we might have to let our house go into foreclosure
Posted: Tue Jul 07, 2009 04:35 pm Post Subject:
I understand the basic concept of PMI but must admit I don't understand why the PMI company would come after me after paying a claim on my behalf. If they are going to come after me if I default and they pay a claim on my behalf, what was I paying premiums for?
Is it because unlike home or auto insurance they can't increase my rate after a claim because I'd no longer have a "policy" ?
Posted: Tue Jul 07, 2009 08:35 pm Post Subject:
what was I paying premiums for?
You were paying the premiums for the policy that the mortgage company required in order to loan you the money for the home (in case you stopped paying). The insurance was issued to and for the benefit of, the mortgage company. Who it protects is not always related.So your paying the premium as a condition of the mortgage company loaning you the money for the home. It's a little like key man life insurance. It does not benefit the person who dies, rather the company the person worked for... as they suffer a loss as well.
The premium is related to the risk that the PMI carrier will never collect back what they payout... which I imagine happens quite often.
I'd guess that the average amount paid to PMI carrier over the life of a loan is about $15,000. On a single default a PMI carrier could easily pay out 20 times that amount. This is over the course of 20 years.
Posted: Tue Jul 07, 2009 09:28 pm Post Subject:
I suppose that up until recently there probably weren't many PMI claims paid. Back when houses were still appreciating instead of depreciating over the course of the loan there wouldn't have been near as many cases of a Mortgage lending suffering a "loss" on a defaulted loan. Since they seize collaterall and resell it they probably profited on many defaults up unitl say about the 4th quarter of 2007/first quarter 2008.
Of course I know that in today's market a foreclosure is much more likely to result in a loss to the lender.
So, say I've paid $75.00/mo for PMI for the last 4 years. I owe about $106,000 on the loan so assuming I lose my job and default, they take my house back. Foreclosures similar to my house in my neighborhood are going for about 20-25% of market on average and my house is pretty damn nice. So lets say they sell it for $90,000 and it costs them $6,300 to do so. That means their "loss" is $9700.00 which the PMI carrier reimburses them for then the PMI carrier comes after me for $5200?
Hmm.
Wouldn't it be crazy if auto & home insurance worked this way? Well sir, we've paid your lender the $30,000 total loss on your new car, but since you just started the policy 6 months ago and have only paid $375.00 in premiums were going to need the other $29,625 back now. If you don't have that much we'll be glad garnish your wages.
Posted: Tue Jul 07, 2009 09:53 pm Post Subject:
That means their "loss" is $9700.00 which the PMI carrier reimburses them for then the PMI carrier comes after me for $5200?
One way to look at it but your missing a lot of money that it's costing the bank. They are not in the business of selling homes, so their expenses are much higher then that. But also, they lost the interest over the remaining 26 years. That is what they were owed and now it won't be paid.Posted: Wed Jul 08, 2009 01:16 am Post Subject:
Okay, I can agree that it probably costs them more than 7% to sell the foreclosed house. But I don't owe the bank 30 years of interest just because I took out a 30 year mortgage. I can pay the loan balance off anytime and I don't have to pay the unearned interest. Would they really consider that part of the loss if I default?
Do you have first hand experience with this or what? I've never met anyone, including lenders, who could give me straight answers about how PMI really works.
Didn't really ask a lot of questions when I took out the loan because default seemed completely impossible (and still highly unlikely thank goodness) but now I'm curious enough to want to get to the bottom of this.
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