How to Submit a PMI Claim

                                                

PMI is private mortgage insurance that protects the mortgage lender against default. PMI allows people to purchase a home by putting less money down usually 3-5% of the purchase price versus the standard 20% down payment. In some instances, the value of the home exceeds 80% of the outstanding loan and a lender will cancel the PMI depending on the policy and homeowner payment history. The homeowner makes monthly payments and the lender files a claim and receives the payout when a default occurs.

A portion of PMI is charged upfront at closing and is typically 1.75% of the sales price. The remaining fee is charged monthly as part of the mortgage payment (PMI + principal + interest + taxes) until the value of the home exceeds 80% of the outstanding loan balance. For most homeowners this is usually the life of the loan.  Most PMI premiums remain the same for the first 10 years of the loan and then reduce to a lower amount.

You must notify your PMI company once 2 mortgage payments have been missed, or when you file a foreclosure or a short sale has begun.  The claim should be filed within 60 days of the transfer of title. Your PMI company will confirm and verify your coverage is active and request the necessary documents to process the claim within 20 days of receipt. Upon receipt of all required documents, the PMI company will review and finalize the claim. Claim payments are usually scheduled within 60 - 70 days from the date the claim and documentation were received and payments are paid to the lender. A PMI claim pays 10-35% of the loan payoff amount at the time of the loss is incurred to the lender. 

A lender can agree to accept a settlement sale on a property instead of a foreclosure and still has the option to file a claim with the PMI company for the property held in escrow.  When a home goes into foreclosure a lender can submit a PMI claim to pay the cost of processing the foreclosure and for any other associated costs. However, the PMI company does not have to pay a claim until there is a foreclosure. 

If you decide to do a short sale you must submit paperwork to your lender who submits it to the PMI company and requests that the PMI claim be paid prior to foreclosure.  The PMI company does not have to pay the claim to the lender right away and can wait to see if the property goes to foreclosure.  The PMI company may agree to pay the claim early but usually requires the borrower to pay some money.  You are required to pay back the lender the amount you borrowed minus the principalPrincipal is the amount of money you borrow if you're getting a home loan. If you're buying a bond, the principal is the amount you're lending. Typically, you'll buy bonds with a face value of ,000. If you buy a ,000 bond, your principal is ,000. you paid off at that time plus any additional fees and costs that you might owe the lender as a result of defaulting on the loan.  If the PMI company determines that the borrower has assets or income to pay the loss the PMI company may file a lawsuit or threaten legal action if payment is not received.  If this occurs contact a real estate lawyer.

 

When a property is listed as a short sale all submitted offers must be presented to the lender. The lender has the option to allow the PMI company to review the offer and accept or decline it. This process usually takes 30 to 60 days. However, the bank will review the figures on the offer to ensure that it can claim the maximum amount of PMI from the escrow account with all submitted offers, and will reserve the right to counter an offer.  Unfortunately, the homeowner is not eligible for compensation if any profit is made off of the sale of the home.

If a short sale has remained on the market for over 6 months the lender has the option to proceed with a foreclosure. The lender can sell the property to a private investor, sell the property at auction or keep the property and list the foreclosure sale with a real estate firm and once finalized the homeowner will be evicted.

The homeowner does not have to pay any monies: when the lender and borrower no longer have to repay the full amount, when the borrower files bankruptcy and all or part of the loan debt is released or in some states where the lender can only go after the property and can’t go after the borrower for a deficiency judgment; if you had not been able to repay the loan and the lender had foreclosed, if you had sold the home as a short sale and the lender agreed to accept that short amount as full payment for the debt and agreed not to go after you for the shortage, the lender would not be able to ask you for additional money.

On a $100,000.00 loan with 20% PMI when the borrower defaults and the lender takes the property back through foreclosure, the lender will sell the property.  If the net proceeds do not cover the entire loan plus fees, say a net of $80,000.00, the lender would file a claim with the PMI company for the 20% that they lost. The homeowner may have to pay back some money.

Short Sales Better Than Foreclosure

On April 5, 2010, a new federal program will be implemented to help homeowners facing foreclosure. The new program called the Home Affordable Foreclosure Alternatives (HAFA) will push mortgage companies and banks to allow homeowners to do a short sale instead of foreclosing on their homes. A short sale is when a homeowner sells their home for less than what is owed on the home and does not have the money to pay the lender the difference.

Banks are already lost millions on homes due to foreclosures since 2008. Banks are still in denial and are only concerned with working with customers who can make them a profit. Working with homeowners who are facing foreclosure will help the economy and help current homeowners. Would a bank rather get $0 or get hundreds of thousands of dollars? Either way banks will take a loss but the short sales will be cheaper to process than foreclosures.

Unfortunately the housing crisis is still affecting many Americans. However, the number of foreclosures this time last year was 803,489. According to Realtytrac.com the number of foreclosure as of February 2009 was 624,240, but it is still too early to determine if the rate of foreclosure filings is declining from last year's numbers.

Under the new HAFA program, homeowners who don't qualify for the Home Affordable Modification Program (HAMP) and have mortgages backed by Freddie Mac or Fannie Mae or have missed two consecutive mortgage payments have to be offered a short sale. This will force lenders to forgive the difference.

Homeowners will also have the option of doing a "deed in lieu or foreclosure". Under this option a homeowner can voluntarily give their home back to the mortgage company and the lender records the mortgage as paid in full. However, with either option it will be reported on your credit report and greatly lower your credit score even if you have good credit.

Under the HAFA program, homeowners can get up to $1,500 to help them relocate to a new residence. If a homeowner has a second mortgage they can receive up to $3,000 of the short-sale proceeds.

The program may also lure more investors who are able to snap up homes at record low prices. The short sale program will still produce vacant homes but at a cheaper cost to mortgage companies than foreclosures.

Millions of homeowners were targeted to be helped under the HAMP program but so far due to banks unwillingness to assist homeowners, only a little over 100,000 have been helped by the program. Only time will tell how many homeowners will actually be helped under the HAFA program.

6 Options If You Are Facing Foreclosure

Put away those credit cards and stop charging if you are facing foreclosure. Put yourself on a budget quickly and continue to monitor your finances until your other debts are paid off so you do not get into the same situation in the future. Whatever decision you make get it in writing from your lender. Consult a tax advisor to determine rules regarding foreclosure. Ask the lender if the foreclosure option chosen will be reported on your credit report. Here are 6 options to take if you are facing foreclosure.

1. Special Forbearance. When a lender arranges a repayment plan based on your current financial situation or and may provide a temporary reduction or suspension of your mortgage payments. You may qualify for this if you've recently experienced an involuntary reduction in income or an increase in living expenses.

2. Mortgage Modification. You may be able to refinance the debt and extend the term of your mortgage loan for the missed payments. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you've recovered from a financial hardship and your net income is less than it was before the loan default.

3. Partial Claim. Your lender may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current, if you qualify.

4. Pre-Foreclosure Sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. If you're unable to afford the house long-term, you may sell the house yourself before the foreclosure sale date and save some of your equity.

5. Deed-in-lieu of Foreclosure. As a last resort, you may be able to voluntarily "give" your home back to the lender. This may help your chances of getting another mortgage loan in the future.

6. Short Sale. You can sell your house for less than what you currently owe on the mortgage loan. This is win-win for you and the lender. Your home does not have to go into foreclosure, you don't have to file bankruptcy and the process is much faster. The lender saves money without having to file foreclosure proceedings but does lose money by not getting the full price of the home during the sale. The buyer gets the house at a reduced price.