Tuesday, August 4, 2009

Don't think your loan has Mortgage Insurance? Think again...

With the bulk load of short sales that I am negotiating, there is an interesting phenomena I am running into more and more these days.

Lenders are placing their own mortgage insurance policies on loans. This is not your typical private mortgage insurance (PMI) that a borrower pays on a loan in instances they put less than 20% down. Instead, the lender places it on the loan after it is originated at their own expense and without the borrower's knowledge. As a short sale listing agent, often times I will not even discover this information until I get to an advanced stage of negotiation. Low level lender customer service, collections, and loss mitigation departments will not necessarily have this information.

Why is this a big deal? The mortgage insurance company gets involved in analyzing the short sale, and has the final say in whether or not the short sale is approved!

So what does this really mean? Basically it means that the short sale approval will ultimately take longer to approve (longer is a relative term!). The mortgage insurance company, faced with having to pay a large claim to the mortgage company, sometimes will demand a larger payoff that what is being offered. If the insurance is covering a first position loan, the mortgage insurance company may ask the seller to pay a promissory note, ask the seller to make a contribution toward the close of escrow, or ask for a higher overall selling price in the short sale. If the insurance is covering a second position loan, the mortgage insurance company may ask for a larger payout from the first position mortgage, or that the seller makes a contribution to close the escrow. I have seen promissory note requests from mortgage insurance companies range from $10,000 - $92,000. I have also seen cash contribution requests range from $10,000 - $25,000. No joke!

You might think - if a seller has a large chunk of cash laying around, then why do they need a short sale?

These scenarios can be properly negotiated by someone who specializes in short sales...

2 comments:

Greg Cowart said...

Wow Erin, I have not heard of this yet and I work for a direct lender! Is this something Short-sale listing specialists are going to be able to uncover in their upfront discovery? It CAN be hard enough to get a short-sale approved and closed already, some buyers are simpliy staying away from them period, I wonder if this is going to become a common issue with short sales going forward?

erin@erinattardi.com said...

No it is not something that I have been able to find out up front, even when I directly ask if there is. It is something that gets uncovered once it gets to a more advanced stage of negotiation. Yes I am finding it with many of my short sales.