Dennis' Mortgage Blog

Question of the week:  Last week you spoke about the advantage of mortgage insurance being paid by the lender, how can I get rid of mortgage insurance if I have it?

Answer:  Last week I addressed the advantage of Lender Paid Mortgage Insurance (LPMI) over traditional borrower paid MI on a monthly basis.  I received a few inquiries about how someone with monthly mortgage insurance premiums could get the MI cancelled from their mortgage and lower their monthly payment obligations.

As I list the requirements for most lenders to cancel MI from a mortgage account it is important to note that the requirements can vary from lender to lender.  The most significant difference the 80% loan to value threshold and how it is determined.  At the end of this list I will address having your monthly mortgage insurance premium lifted if you have an FHA mortgage.

To have MI cancelled from your mortgage:

• Your loan to value must be 80% or lower.  This is the primary difference between lenders’ requirements. 
• Strictest requirements are that the 80% value must be principal reduction of your mortgage so it is 80% of the value of the property at the time you funded the mortgage, i.e. the appraised value or sales price when you purchased or refinanced the mortgage.  You can obtain the 80% LTV through normal principal reduction with your scheduled payments or by making extra payment(s) to reduce principal.  For a mortgage that was originally 90% loan to value on a 30 year fixed rate loan with no additional principal payments it can take seven to nine years to achieve 80% loan to value.  In this formula you will have to show proof your property has not declined in value since the loan funded.
• Some of the lenders that follow this requirement may use current appraised value if you can demonstrate proof that you have added value to the property with remodel or addition.  You will most likely have to show your costs and definitely will need an appraisal.
• Loosest requirements use current value to determine whether your mortgage is at 80% LTV, in other words market appreciation is considered.  If the lender allows this formula for removing MI you will need to contact the lender for the name of an approved appraiser to determine the value and show you have met the 80% or lower LTV threshold. 
• You must have made payments for at least two years with no payments more than 30 days late in the prior twelve months and no payments more than 60 days late in the prior twenty four months.
• Note that some lenders require that you have no more than one late payment, one that is made beyond the 15 day grace period but before the end of the month due, in the prior twelve months.
• You must request the cancellation in writing.  If you do not request cancellation of your MI premiums by law the lender must cancel the MI once your principal balance has declined to 78% of the value of the property at the time the mortgage was funded.

For FHA all the above requirements hold with the exception that the level is 78% LTV for removal, the cancellation can only come from principal reduction and not an increase in the property’s value and FHA is not obligated to remove the MI unless you request it in writing.

If you have monthly mortgage insurance your lender should be sending you an annual disclosure informing you of their requirements for cancelling mortgage insurance.  If you are curious and cannot find the disclosure you may find it on your lender’s website or can obtain a copy by calling the customer service department.

Have a question for me?  Ask me!

Some important economic data this week, unemployment claims, wholesale prices (addressed with links below to daily blog entries) and today a big number that impacts mortgage rates was released:  Consumer Price Index.  What you and I pay for goods and services and the primary gauge of inflation by the Federal Reserve. 

It’s bad but it’s good.  The overall number is not so good and the “core” number is not so bad.  Consumer, and wholesale, prices are reported two different ways; the gross or overall number and the “core” number.  The “core” number is the increase, or decrease, in prices when energy and food costs are stripped from the data.  The reason food and energy are removed is because these prices can be more volatile and have a big influence on month-to-month prices.  As we have all experienced with the jump in gas prices the past month or so.

Core number evaluation is not a good measure in my opinion because it basically ignores that we do spend a significant amount of our monthly budget on energy and food.  Whether the Fed and others take into account that I am now paying over $80 to fill up the Honda Pilot today versus paying a little over $60 not too long ago does not mean I am not paying a lot more to get to work, get the kids to their activities and visit the in-laws in South Orange County. 

In March prices increased 0.5% from February, that includes gas, tomatoes and milk.  On an annualized basis inflation is up 2.7% in March, the highest since December 2009.  This is above the Fed’s target rate of 2% inflation and should raise concerns about higher interest rates.  Should.

Investors know that “core” matters to the Fed, and the “core” increase in prices you paid in March were barely up, only 0.1% from February.  That means while gas has increased to over $4.00 per gallon and milk is about the same price for a half gallon, shoes went from $30.03 a pair to $30.03 a pair and set of sheets and pillowcases at Target went from $70.00 to $70.01. Since the increase in sheets, pillowcases and shoes was virtually nothing, investors know the Fed will not be looking to increase rates to dampen inflation.

Of course you, like me, buy a heck of a lot more gas for the family car and milk for the fridge each month than you do shoes and sheets.  So while the Fed is not concerned about inflation, you and I should be.

A reminder, you can check My Blog daily, or follow me on Twitter (dcslb) or my new Stratis Financial Facebook page which you can “like.”

This week’s blog postings:

Is FHA Looking For Fewer Loans, Or Is Washington Anti-Homeownership?  The title to this Monday post is pretty explanatory as to the content.   A look at the tighter criteria in light of the mortgage and housing markets recent history. 

Oil Down, Stocks Down, Rates Down…  Tuesday’s markets did not make much sense as each reacted to the other in historically anomalous ways.

Retail Sales Not So Hot  Wednesday showed us that perhaps gasoline and food prices do matter as retail sales for March were announced.

Jobless Claims and Prices Increase  Yesterday a surprise in initial unemployment claims being filed and wholesale prices giving a look at future inflation for consumers.

Feedback is always welcome!  Please let me know if what you think of a bit more information through the week on specific economic events and issues relating to the mortgage and housing markets versus more detail on the Friday update.  Instant feedback click here

Overall a volatile week if we look at the daily trading of Mortgage Backed Securities.  Each day has seen large gaps between the highs and lows of the day but overall the reaction to the economic news and world events has been positive for mortgage rates.  Late trading this afternoon gave a surge to MBS prices and a further dip in rates.

Rates for Friday April 15, 2011:

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               4.75%               Down 0.125%

30 year high-balance conforming           4.875%             Down 0.25%

30 year FHA                                         4.375%             Down 0.25%

30 year FHA jumbo                              4.625%             Down 0.375%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

*With new Fed regulations in place cost increase has been added to weekly rate quote.  Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Keep in mind the Open House page on my website where agents who are holding weekend open houses can show the affordability of their listings.  If you, or someone you know, is in the market for a new home call me for mortgage qualifying and check out the open house page for your potential new home.  Weekend Open Houses

Long Beach will be a bit noisy this weekend with the annual Long Beach Grand Prix.  We will be seeing any of the race or other weekend festivities as the girls are in their school production of “Once On This Island.”  A family event as Leslie designed the costumes and made many of them.  A thespian rather than automotive weekend for the Smith.

Have a great week,

Dennis