|
Insuring your mortgage
|
 |
January 22, 1997: 6:25 p.m. ET
Don't be fooled -- borrowers don't always need mortgage insurance
From Contributing Editor William S. Rukeyser
|
NEW YORK (CNNfn) - When Ben Martin refinanced his home mortgage in 1992, the Dallas lawyer put up less than 20 percent of the home's value as a down payment, so Martin's lender required him to buy private mortgage insurance (PMI).
But by 1994, Martin had built up 20 percent equity in his home, which should have meant he could cancel his mortgage insurance.
Doing so would have saved him the extra $35 to $75 a month that PMI underwriters usually charge for the insurance.
However, Martin said he "was never told that I had a right to cancel the PMI. In fact, I have never even received a copy of the PMI policy to this day. I don' t know who the PMI company is that evidently insured my house, or (even what) they were insuring."
Now, Martin is one of dozens of homeowners who are suing their lenders over mortgage-insurance payments.
PMI policies guarantee that lenders get paid even if homeowners default on mortgages owing more money than the value of the borrower's home equity.
Lenders generally require PMI when a borrower buys a home with less than the traditional 20 percent down payment.
Jonathan Gray, a mortgage-industry analyst with Sanford C. Bernstein & Co., said nearly half of all new mortgages fall into that category.
"Defaults occur at least three times as readily -- in some instances, four times as readily -- on (such) loans," Gray said. "Without mortgage insurance, quite frankly, thousands -- possibly tens of thousands -- of families would not be able to (receive a mortgage on) a home." (272K WAV) (272K AIFF)
Yet to make sure borrowers don't pay unnecessary PMI premiums, the federal government is proposing new requirements for companies who service government-backed mortgages.
The proposal would require lenders to inform homeowners of PMI cancellation options, to offer instructions about canceling the insurance, and to in certain cases cancel policies automatically. (2.04M QuickTime Movie)
Rep. James Hansen, R-Utah, is also pushing federal legislation along those lines.
In the meantime, Hansen's legislative assistant, Joshua Johnson, recommends borrowers keep track of their mortgage balances and home's current market value.
He said that when a mortgage's balance falls to 80 percent or less of the home's market value, borrowers should cancel their PMI.
"It's a simple process, but it can save a lot of money," Johnson said.
|
|
|
|
|
 |
|
