Although most attention turns towards homeowners and mortgage lenders during the housing slump, private mortgage insurance companies that insure the loans are facing billions in expected payout next year. (more…)

Mortgage defaults (or missed payments) were up 30% in September 2007 compared to September 2006 according to Mortgage Insurance Companies of America. (more…)

The Florida Housing Finance Corp. Friday announced a new program to help first-time home buyers in the Sunshine State receive lower Florida mortgage payments. (more…)

This time next year, many Florida homeowners who pay insurance on their home loan will be able to secure an extra deduction on their federal income tax returns.

(more…)

For current Florida mortgage holders, various reasons for stress abound. There are numerous issues owners must deal with as the housing market changes. For instance …

The housing boom has lifted home values 51 percent over the past six years. For most of us, that means that if our house was destroyed, mortgage insurance would pick up only a portion of the cost to rebuild.

For the underinsured, the average shortfall is 21 percent, according to one firm that tracks building prices. Even if you bought a guaranteed replacement or an extended replacement policy, you could still face too-low coverage caps.

Remember: Water is your home’s biggest enemy, and your regular policy won’t cover all types of damage. If you live in a floodplain, you need flood insurance. You’ll pay $1,000 a year on average if you live in an area that’s susceptible.

Can I afford my mortgage?

Over the next few years, about countless adjustable-rate Florida home loans will reset. If yours is among them, you need to decide whether to refinance now or later. Check the fine print on your mortgage to see how bad it can get in the first reset and over the life of the loan.

While it may seem like a no-brainer to Florida mortgage refinance now, you may not need to rush because rates aren’t expected to climb sharply this year. What’s more, you could pay closing costs of 2 percent to 3 percent of the loan. Talk to our experts today to learn more about your options.

Am I paying too much?

Another nagging concern may be that you’re spending money on your house for no good reason. If you bought after July 1998 with less than 20 percent down and had to get private mortgage insurance, your lender must automatically cancel your PMI once you’ve paid off 22 percent of the loan. But price appreciation may help you hit the target earlier.

This annoying fee can run $16 to $50 a month for every $100,000 of debt. However, before you pay $300 or so for an appraiser to prove that your home’s greater value has pushed your equity higher, understand what it will take to waive PMI.

We recently went over various ways in which borrowers can fund a down payment. Here’s a related topic:

Private mortgage insurance.

PMI is extra insurance a lender may require you to buy if you’re forking over less than 20% of a property’s value as that down payment. It’s necessary because owners who put down small amounts are more likely to default on a Florida home loan.

Remember: If you opt for mortgage insurance, once you earn 20% equity in your home, you should be able to cancel the insurance.

An important thing to understand about PMI is that the 20% equity threshold relates to your home’s value, not necessarily 20% of the Florida mortgage amount. If you get a great deal and buy your residence below market value, buy a fixer-upper and fix it up to increase its value, or pick a locale that suddenly becomes popular and rapidly appreciates in value, your mortgage amount might be very different from the value of your house.

In the end: If you’re required to pay for PMI, keep tabs on the changing value of your home. Compare this to the balance remaining on your Florida home mortgage and see where thingd stand.

We’re a Florida home mortgage brokerage. Our job is to assist hopeful buyers with questions they have pertaining to any aspect of this important process. Stock advice or information is rarely mentioned across this website.

However, recent insight into the mortgage insurance business sheds light on the housing market in general. So let’s get into it …

Burgeoning Florida home mortgage insurance world

These companies - that provide lenders and their secondary market investors with a hefty degree of comfort on low-down-payment Florida home loans - are rising out of trying times. Contrary to the cycle that generated the greatest housing and mortgage boom in history, mortgage insurers such as MGIC Investments, PMI Group, Radian Group, and Triad Guaranty didn’t fare so well over the past few years.

One of the main culprits behind the divergence was the proliferation of piggyback Florida home mortgages being pushed by lenders. In periods of low interest rates, the spread between first and second mortgage interest rates diminishes to a point where it’s actually cheaper for a borrower with less equity to have a first and a second mortgage, as opposed to the standard first with mortgage insurance.

Because lenders make more money with the piggyback loan, they tend to encourage customers to take a first and a second mortgage over the more traditional mortgage insurance approach.

Another factor that hampered the mortgage insurance industry had to do the rapid appreciation in home values. This allowed a number of borrowers to cancel mortgage insurance once they reached their lender’s loan/value target. (Mortgage insurance is required when the loan/value ratio exceeds 80 percent; borrowers can petition to cancel the insurance, and the monthly fee, when the increased equity satisfies the lender’s requirements.)

Shift in the housing market

Things are now changing in favor of the mortgage insurance industry. Higher rates mean fewer piggyback loans. Declining home values at a time when borrowers are turning in their adjustable Florida mortgages expands their market.

Higher rates also equte to less Florida home loan refinancing, which keeps the existing book of business from running off.

Mortgage insurers have gone international with a fair degree of initial success, as well. Australia has written mortgage insurance for the past few years, and it appears that the concept is gaining acceptance in Western Europe and Hong Kong.

While these facts may have no interest to future buyers, what they reflect about the Florida housing market in general is worth taking note of.

Here’s the bottom line: You can take advantage of lower monthly payments on a Florida mortgage loan with mortgage insurance, rather than a piggyback loan.

Here’s the basis for such a development: Mortgage insurance has become competitive with piggyback Florida home loans due to a pair developments:

1. First, short-term interest rates rose during the Federal Reserve’s two-year rate-hike campaign. As a result, rates increased on the Florida home equity loans and the lines of credit that piggyback mortgages use.
2. Second, mortgage insurance companies started pushing single-premium policies that could be financed as part of the loan.

Overall, the smaller your down payment, the more likely you are to default on the Florida home mortgage and, thereby, cost the lender money and strife. The loan is considered risky if the down payment is less than 20 percent. One solution is mortgage insurance.

Advantage to the lender

The borrower may pay for private mortgage insurance, but the lender is the beneficiary. Mortgage insurance reimburses the holder of the loan for foreclosure-related expenses such as missed payments, attorney fees and house repairs.

How much does it cost? The figure varies depending on the size of the down payment and the borrower’s credit history. It can be expensive, so the mortgage industry devised a way around it: piggyback loans.

With a piggyback, the borrower splits the financing in two: a primary mortgage for 80 percent, and then a Florida home equity loan or credit line for 20 percent minus the down payment. Structuring a loan this way eliminates the requirement for mortgage insurance.

Two or three years ago, when you could get a home equity line of credit at 4 percent or 5 percent, piggybacks were almost always cheaper. Now, however, the average line of credit carries a rate above 8 percent, while the average home equity loan is a shade under 8 percent. Moreover, rates on credit lines and equity loans usually run a little higher on piggybacks. B

For this reason, we can reiterate the point we made above:: Piggyback Florida mortgages have higher monthly payments than they used to, while mortgage insurance costs the same.

We know. You’re already paying a ton for your Florida home loan, so the idea of paying even more for mortgage insurance for the first few years probably sounds as appealing as the stomach flu.

Fortunately, over the years, ways of avoiding these payments have emerged — even if you can’t pull together the 20 percent down payment.

Here, we’ll take an in-depth look at mortgage insurance and help you determine if you need it.

Essentially, mortgage insurance is an insurance policy that home buyers are required (in most cases) to purchase if their down payment is low. If you can’t pony up 20 percent or more of the property’s sale price or appraised value, your lender will require this protection, lest you default on your Florida mortgage loan.

But here’s the upside. Commonly (and mistakenly) referred to as private mortgage insurance (PMI), which is one of the product’s largest providers, millions of people have been able to purchase homes.

With higher prices than ever after a five-year housing bubble, people are coming to the table with smaller and smaller down payments, and this insurance allows more potential home buyers to purchase homes, and sooner, with as little as a 5 percent down. Also, it can help an individual qualify for a variety of Florida mortgages.

The cost of mortgage insurance varies according to the down payment and Florida mortgage loan, but it typically equals approximately one half of one percent of the total amount of the loan. Here’s how it’s calculated:

• Assuming you purchased a home for $200,000 (good luck with that in South Florida), and have $20,000 for your down payment.
• Your lender will multiply the remaining 90 percent by .005 percent, or half of 1 percent. The result, $900, is your mortgage insurance premium, which is divided into monthly payments.

After a few years of Florida home mortgage payments, you should be in position to stop making payments on the premium. Keep track of payments and contact your lender when you reach 80 percent equity, so that the policy can be aborted.

The Homeowners Protection Act of 1999 requires banks and/or mortgage lenders to notify you how many months/years it will take to pay off 20 percent of your home loan’s principal. It’s good to keep track of it on your own, too.

One strategy commonly employed is to pay a higher interest rate on your mortgage. Some lenders will waive the mortgage insurance requirement if home buyers agree to pay a higher mortgage rates. One advantage to this strategy is that mortgage interest is tax deductible, whereas the insurance premium is not.

Another way to avoid paying PMI is by using the “80-10-10” loan strategy.

This strategy involves taking on two loans and putting down a 10 percent down payment to purchase a home. One home loan finances 80 percent of the mortgage, while the second loan finances the remaining 10 percent of the sales price.

Subsequently, the second mortgage — the one that covers the remaining 10 percent — has a higher interest rate. But since the amount of that loan is low, the interest charges are almost negligible, and (relatively at least) easy to pay off.

Fortunately, you may also be able to leverage your equity into evading this insurance earlier than expected. It’s possible to cancel your mortgage insurance if you can prove that your home has increased significantly in value. If the value of your home has increased, you may already have 20 percent (or even more) of the equity you need to cancel the policy. You can submit evidence of this to your Florida mortgage loan provider, but the process may slow.

Naturally, if errors or omissions in your credit report raised your monthly mortgage payments by hundreds of dollars, you’d want to be aware of it. Right?

Of course. But you might not get that chance. Under current mortgage industry practices, you may not get even a hint about costly trouble buried in those files when you apply for a low down payment loan that requires mortgage insurance (MI), writes syndicated housing columnist Kenneth Harney. This is because mortgage insurance firms generally do not issue what are known as “adverse action notices” when they double or triple monthly premium charges because of negative information regarding consumers’ credit.

The Federal Trade Commission (FTC) is weighing in to try and change that. On March 17, the FTC asked a U.S. appellate court in Philadelphia to rule that when a mortgage insurer raises premiums because of negative credit file information, the company must let the borrower know. The FTC oversees credit laws and has intervened in a case involving homeowners who were hit with $903.58 monthly MI premiums — about triple what they anticipated.

The reason? Radian Guaranty, Inc., a Philadelphia-based mortgage insurance firm, found some negative information in the home buyers’ credit files and believed them to be terrible credit risks. In reality, the files contained outdated and incorrect data. Like most companies that check consumers’ credit, Radian did not know that the negative data in the files was inaccurate. The company simply raised premiums to cover the perceived risk.

The FTC believes that Radian should have issued an adverse action notice to the plaintiffs. Such a notice is designed to alert home loan applicants that their credit files contain derogatory information and that they should check immediately to determine what, if anything, is wrong. The notices also require credit bureaus to provide free credit reports to consumers who request them, and to investigate and correct incorrect information.

Mortgage lenders typically issue the adverse action notices whenever they reject a home loan application on the basis of credit data. But insurers, have traditionally argued that they have no such responsibilities when they increase applicants’ monthly premium charges. In recent months, Milwaukee-based Mortgage Guaranty Insurance Corp. and other insurers have started issuing the notices in certain cases, but many firms refuse.

Radian argues that its customer is the mortgage lender, not the home buyer. Its coverage is in place to protect the lender from the risks of default, even as the premiums are paid by the borrower. It has no direct contact with the borrower, other than receiving premium payments forwarded by the lender, and therefore should not come between its customer and the borrower. This could unravel or delay the closing of the mortgage transaction.

• Illogical as it may seem to prospective borrowers, Radian convinced a federal court on that point, sending the issue to the appellate level.
• That, in turn, prompted the FTC to intervene and let the court know how the U.S. government’s own credit experts interpret the law.

The brief filed on March 17 makes it clear that U.S. mortgage insurers are covered by the fair credit law’s adverse action rules. If they don’t alert the consumer that they may be charged 2-3 times the premiums they would pay otherwise, who is going to? Certainly not the lender.

“Absent the notices, the consumer may never know to invoke his or her federal legal rights, and may never even learn that a premium increase has occurred,” wrote FTC attorney Lawrence DeMille-Wagman.

What this means for you going forward:

• If your Florida home loan requires mortgage insurance (which it will if you put down less than 20 percent), tell your loan officer that you want to be notified if credit information raises the cost of your premiums.
• Better yet, avoid potential problems altogether by ordering copies of your reports from the three national credit bureaus months in advance. Once per 12 months, these are free.
• Check every item in each report to make sure it is complete and accurate. That way, you’ll never end up with a $900 mortgage insurance fee every month on top of your PITI payments.
• You’ll also avoid the hassle of going to federal court over your Florida home loan. No one wants that!