Mortgage Insurance And Short Sale Packages
Today, we would like to discuss mortgage insurance. We do not have the time to please all of your needs on this topic. So, if you want more details on this important matter, check out our estore with our video package.
At the very basic level there are two types of mortgage insurance. There is PMI, private mortgage insurance. If the purchaser goes out and gets a loan that is greater than 80 percent of the value of the property, they have to get PMI. The other type of mortgage insurance is LPMI or lender placed mortgage insurance. This is where the bank looks at a collection of loans and decides that the loans seem a little dicey. So, they put LPMI on the loans to cover their assets.
We recognize that there is a risk, but it does not necessarily make sense for a lender to lend money to somebody that they feel is a risk to default. So, if the loan defaults, the bank or investor may or may not be accountable for the loss. It’s insurance just like your car insurance or house owners insurance.
In a short sale, the lender has to go to the mortgage insurance company to get permission to complete a short sale. So, the mortgage insurance business has the priority interest in the loan. In effect, the investor gives up their claim.
In some states, like Arizona Short sales, at a certain spot that capital is maxed out. When the loss is so great, the insurance is maxed out. For example, with a $100,000 loss, the mortgage insurance company might have a $40,000 insurance policy. So, the mortgage insurance company can only collect $40,000. The mortgage company, in one precise case, is in fact asking for $40,000 from the bank. The mortgage insurance business is actually demanding money from the bank or forcing the residence to go to foreclosure.
One specific key to battling the mortage insurance business is records of hardship. When their payout is the same with or without the short sale, you will discover the short sale to be much more difficult. The mortgage insurance company is simply willing to take the residence owner down with them.
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