Do you know any property owner that has been unsuccessful in trying to modify his current loan with his lender? Personally I heard many horror stories and I wouldn’t be surprised if you did, too. You may want to pay attention to this since what I’m about to share with you is a little known secret that most people don’t know. But first, let’s be clear that this may only work for the folks who have PMI on their loans.
PMI stands for Private Mortgage Insurance. In a nutshell, it is a type of insurance offered by a third party private insurance company – not by HUD, do not confuse it with the FHA MIP – to offset certain losses to the lender in case the borrower defaults. It is there to protect the lender and not the borrower, even though the borrower pays for the premium typically on a monthly basis with their mortgage payment. Make no mistake, it is not hazard/fire insurance nor is it mortgage life or disability insurance that lenders offered as optional products after the loan was originated. PMI has been and it usually is required when an individual is putting less than 20 percent down payment and the loan is more than 80 percent of the purchase price.
If you know any troubled property owner please help him by offering him this piece of information. Whether it’s his personal residence or an investment property, it doesn’t matter, he needs to find out how to get help. But first, he needs to find out if PMI is part of his original loan. Here is a simple way if he does not know it upfront. Have him…
1. Pull out a fairly recent mortgage statement,
2. Review the breakdown of the mortgage payment,
3. If PMI is part of it that’s an indication that his mortgage is PMI insured.
Next step is to find out the name of the PMI company. Unfortunately, the loan documents he signed at closing will not disclose that information. He would need to call the mortgage company that services the loan. A few PMI companies have representatives sitting at the desks at some large servicing companies and that may help a lot. I personally wanted to do a test just so that I know how difficult it is to get that information. From my experience it took me about 20 minutes. The customer service representative was not too helpful so I asked – and let me emphasize the fact that one must ask – to speak with the supervisor. I finally received the information. I suspect that it may take a little more effort and time for people in trouble to get that info but here is the reason for which the effort is worth it.
While the PMI company does not have the authority to modify the loan, it can act as a great intermediary between the lender and the borrower. Again, if the troubled borrower is successful in working out a modification with his lender there is no need to go through all this. But if there is no indication of a reasonable solution then the PMI company may be a great tool during the process.
Once contact with the PMI company has been reached, a specific MI person will be assigned to the case. An evaluation follows, after which some modification options are being provided. The troubled property owner will then choose an option best suited. What will make the PMI company’s modification offer valuable to the lender is money. As long as the property owner can handle the modified payment the PMI company will pay the lender the difference between the old payments and the new ones. The property owner does not have to repay it, ever. Why would the insurer offer to pay this and help the troubled individual? For example, paying now $10,000 to keep the owner from defaulting is far better than a $50,000 loss claim they’d have to pay to the lender if the house goes into foreclosure.
Finally, if the troubled owner cannot afford even a modified payment the PMI company can offer a “relocation assistance” to help him move. And no, the “relocation assistance” would not work for the owner of an investment property.
This process could be applied by all property owners with PMI – owner occupants and investors – however one must be in trouble for this to work. Being in trouble in the lender’s eyes means being already behind on the mortgage. For those that are current with their mortgage yet foresee immediate future financial difficulties – while it has not been made official – it’s worth trying this alternative. If they can make their case to the PMI company there may very well be a solution.