Is the mortgage lender telling the truth about PMI?
February 16, 2008 11:18 AM Subscribe
My roommate bought the house we live in four years ago and I'd like to ask a question on her behalf. She did not have enough for the 20% downpayment and has been paying PMI ever since. She'd like to cancel PMI and save that money, but the lender is giving her the runaround.
According to the tax assessor, the house has gone up about 20% since she bought it and that doesn't include the interior remodeling her dad has done. She's been overpaying the mortgage since she got the house and the loan-to-value ratio is now down to 79.50%. She requested the lender (CitiMortgage) cancel the PMI, but was told they require her to pay for an appraisal from a company of their choice at a cost of around $400.
She'd like to cancel PMI without any additional wasted expense, so she offered to pay extra to bring the LTV below 78% where Federal Law requires the lender to cancel it. CitiMortgage told her that's based on the original amortization schedule, so any extra payments would not count and there's no way out of PMI without paying for an appraisal. Is that really true? We're having trouble finding anything that gets specific about it.
According to the tax assessor, the house has gone up about 20% since she bought it and that doesn't include the interior remodeling her dad has done. She's been overpaying the mortgage since she got the house and the loan-to-value ratio is now down to 79.50%. She requested the lender (CitiMortgage) cancel the PMI, but was told they require her to pay for an appraisal from a company of their choice at a cost of around $400.
She'd like to cancel PMI without any additional wasted expense, so she offered to pay extra to bring the LTV below 78% where Federal Law requires the lender to cancel it. CitiMortgage told her that's based on the original amortization schedule, so any extra payments would not count and there's no way out of PMI without paying for an appraisal. Is that really true? We're having trouble finding anything that gets specific about it.
Go back and reread the original PMI portions of the loan documents, but I would assume the lender is correct, that they require an updated appraisal to confirm the accurate LTV ratio.
Now the part about not being able to pay out ahead to get rid of PMI sounds a bit iffy. Unfortunately, that's the sort of loopholes they put in to keep people paying, so refer to your original documents. I would say contact a lawyer, but obviously that would be an additional cost as well.
I'm assuming when you say she wants to pay down to 78%, you mean of the original appraised value and not the updated value?
In all reality, an appraisal is probably the way to go. Compare the cost of continuing to pay the PMI for X months remaining on the original schedule, versus the $400 up front. Especially if she could invest that extra PMI payment money somewhere else and earn interest.
The only other warning I would have is that the appraisal may not reflect the price the assessor gave. The remodeling would certainly help, but as you know it is a down market and if you're cutting it that close, there is a chance you pay the $400 up front, and they come back with an appraisal that puts LTV at 80.1%.
posted by shinynewnick at 11:39 AM on February 16, 2008
Now the part about not being able to pay out ahead to get rid of PMI sounds a bit iffy. Unfortunately, that's the sort of loopholes they put in to keep people paying, so refer to your original documents. I would say contact a lawyer, but obviously that would be an additional cost as well.
I'm assuming when you say she wants to pay down to 78%, you mean of the original appraised value and not the updated value?
In all reality, an appraisal is probably the way to go. Compare the cost of continuing to pay the PMI for X months remaining on the original schedule, versus the $400 up front. Especially if she could invest that extra PMI payment money somewhere else and earn interest.
The only other warning I would have is that the appraisal may not reflect the price the assessor gave. The remodeling would certainly help, but as you know it is a down market and if you're cutting it that close, there is a chance you pay the $400 up front, and they come back with an appraisal that puts LTV at 80.1%.
posted by shinynewnick at 11:39 AM on February 16, 2008
Response by poster: Yes, the current LTV of 79.50% is based on the original selling price of the house four years ago. She's probably around 65% LTV or less if the increased value is considered.
Refinancing might be another option, but she got a good rate before so the closing costs would probably make it cost more in the end.
posted by amfea at 11:44 AM on February 16, 2008
Refinancing might be another option, but she got a good rate before so the closing costs would probably make it cost more in the end.
posted by amfea at 11:44 AM on February 16, 2008
She may be able to avoid a paid appraisal if the latest tax bill shows the higher value. I'm assuming that the city appraises properties...If that ain't good enough for the bank then do a refi with no points. The rates should at least be comparable to four years ago.
posted by Gungho at 11:58 AM on February 16, 2008
posted by Gungho at 11:58 AM on February 16, 2008
I haven't read this in depth to say exactly what she needs to do, but here is the Homeowners Protection Act of 1998 that governs the PMI requirements and restrictions. As far as I know, an appraisal is almost always necessary, but mentioning the act to her lender may help convince them to lay out their requirements in a reasonable manner.
posted by Lyn Never at 1:21 PM on February 16, 2008
posted by Lyn Never at 1:21 PM on February 16, 2008
Hire the appraiser of the mortgage holder's choosing and be done with it. They want their guy doing it because of the rampant fraud among many appraisers. Assessed value is no good because there aren't uniform standards for property tax assessment with each state having its own system. My state, for example, currently doesn't look at recent sales as a benchmark for value so you wouldn't want to use their value as market value. Going off the original purchase price isn't much help either as many markets have experienced depreciation lately.
As a side note, don't be too surprised if your interior remodeling doesn't bump the value much. New flooring or a fresh coat of paint won't yield much of a return.
posted by curlyelk at 1:32 PM on February 16, 2008
As a side note, don't be too surprised if your interior remodeling doesn't bump the value much. New flooring or a fresh coat of paint won't yield much of a return.
posted by curlyelk at 1:32 PM on February 16, 2008
I'd recommend just doing the appraisal and being done with it. She has the assessment notice from the county to point to if the bank's assessor comes back with a crazy valuation.
If they won't play ball, it might be worthwhile for her to look at doing a refi. It's a question then of the relative interest rates (current loan vs. refi) and PMI.
Does she have a HUD loan? I believe PMI is a fairly standard requirement for lenders for HUD loans.
posted by Grrlscout at 3:17 AM on February 17, 2008
If they won't play ball, it might be worthwhile for her to look at doing a refi. It's a question then of the relative interest rates (current loan vs. refi) and PMI.
Does she have a HUD loan? I believe PMI is a fairly standard requirement for lenders for HUD loans.
posted by Grrlscout at 3:17 AM on February 17, 2008
Seconding grrlscout- She should consider refinancing the loan.
A cautionary/encouraging tale:
I bought my condo 8 years ago. 0 down, 30 year fixed at 8%. Payment was $650, tons of PMI.
Two years ago, I was able to refinance to a 15 year fixed at 5.75%, pull out $15 grand and remove PMI. New payment $750.
That extra hundred dollars goes directly to equity, so it's like it cost me nothing to save over $50,000 in interest over the life of the loan, and I got $15,000 to play with.
(Note, through no fault of my own, I did time the market such that it worked out good for me. Since that point, the value of my property probably went up 10% and then back down 10%.)
posted by gjc at 6:57 AM on February 17, 2008
A cautionary/encouraging tale:
I bought my condo 8 years ago. 0 down, 30 year fixed at 8%. Payment was $650, tons of PMI.
Two years ago, I was able to refinance to a 15 year fixed at 5.75%, pull out $15 grand and remove PMI. New payment $750.
That extra hundred dollars goes directly to equity, so it's like it cost me nothing to save over $50,000 in interest over the life of the loan, and I got $15,000 to play with.
(Note, through no fault of my own, I did time the market such that it worked out good for me. Since that point, the value of my property probably went up 10% and then back down 10%.)
posted by gjc at 6:57 AM on February 17, 2008
This thread is closed to new comments.
But actually, it was worth having the appraisal a few years after buying the house. I learned a lot, got a lot of advice to improve efficiency.
posted by M.C. Lo-Carb! at 11:30 AM on February 16, 2008