Sep 09 2010
Mortgage Insurance And Short Sale Folders
Today, we would like to talk about mortgage insurance. We do not have the time to satisfy all of your wishes on this theme. So, if you desire more information on this important topic, 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 buyer goes out and receives a loan that is higher than 80 percent of the value of the home, 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 group of loans and decides that the loans seem a little precarious. So, they place LPMI on the loans to shield their assets.
We appreciate that there is a risk, but it doesn’t necessarily make sense for a bank 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 liable 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 business to get consent to execute a short sale. So, the mortgage insurance company has the priority interest in the loan. Essentially, the investor gives up their right.
In some states, like Arizona Short sales, at a certain point that cash is maxed out. When the debit is so great, the insurance is maxed out. For example, with a $100,000 loss, the mortgage insurance business might have a $40,000 insurance policy. So, the mortgage insurance company can only collect $40,000. The mortgage business, in one precise case, is actually asking for $40,000 from the lender. The mortgage insurance business is actually demanding money from the lender or forcing the property to go to foreclosure.
One specific key to battling the mortage insurance company is documentation 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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