LET'S STAY CONNECTED!

Private Mortgage Insurance in the News

Last week the White House issued an Executive Order targeting housing, and directing four main actions including proactive mortgage insurance cancellation. Namely, the FHFA, who oversees Freddie Mac and Fannie Mae, must create a pilot program that proactively cancels borrowers' mortgage insurance once they meet equity requirements based on current market value, removing a monthly cost for qualifying homeowners.

The U.S. Mortgage Insurers (USMI) quickly reminded the industry, “Private MI is one of theonly costs of homeownership that has declined, with premium rates falling 25 percent since 2017, driven by robust competition in the market and tax policies. Private MI is designed to be temporary, and the system already works much the way the order envisions, because when MI is cancelled, a borrower’s monthly payment goes down.”

Orion Lending certainly does loans with loan-to-values (LTVs) above 80 percent, as do our brokers. Fannie Mae and Freddie Mac, who offer conventional loan programs that Orion offers, require “mortgage insurance” at LTVs above 80 percent. We find that our broker’s clients may have heard of private mortgage insurance, also known as PMI, but may not be certain exactly what it is. Given that it is October, and rates have climbed, we are not seeing a pick-up in purchases, but we thought it would be a good time for a refresher on what mortgage insurance is.

On a conventional loan, if your client’s down payment is less than 20 percent of the purchase price, then they’ll need to pay for this additional insurance to secure a loan for the home. It is also required if they refinance their home and have accrued less than 20 percent equity. So, on a $400,000 house, if the loan amount is above $320,000, they will need PMI. This type of policy protects the lender if your client ends up in a foreclosure situation. This way, the lender is assured that they will not lose money.

The fees involved with private mortgage insurance vary depending upon a few factors including the actual size of the down payment and your borrower’s credit score. You can expect the cost of the insurance to be somewhere between 0.3 and 1.5 percent of the loan amount per year, whether it is Orion or another lender. Private mortgage insurance premiums are most often paid as a monthly fee but a large payment upfront is available depending upon the type of loan.

Currently, the cancelation of your client’s PMI premium is dependent upon the LTV of their mortgage loan. If a home is worth $1,000,000and $800,000 is still owed on the home, the loan-to-value ratio is 80 percent. Once the loan reaches 78percent LTV, either through appreciation (owing $800k but on a $1.1 million house), or paying down the principal, the lender should cancel the PMI coverage. It is a good idea however to remind your clients to keep track of their LTV, or add value by helping them. Once their loan is paid down to 80 percent of the original value, ask the lender if they will cancel the PMI payments.

Depending upon the situation and their current loan program, this early cancelation is sometimes an option: ask your Orion AE for more information.

‍