How to remove the monthly Mortgage Insurance payment, aka MI or PMI, from your home loan...

With Sacramento home values on the rise, several past clients have gotten in touch with me recently wanting to know three things: (a) how much is their home worth, (b) is it worth enough to remove my mortgage insurance, and (c) what is the process to do that?

First for those who don't already know, I should explain what Mortgage Insurance is. Mortgage Insurance, aka MI or PMI, is insurance that borrowers must pay for and is typically required for conventional mortgage loans when down payments or equity is below 20%, and ALL FHA loans. This insurance compensates lenders or "investors" for losses due to the default of a mortgage loan. The cost of mortgage insurance varies based on the amount of the initial downpayment for the loan, and how large the loan itself is.

So for example, if a buyer purchased a home with a conventional loan for $175,000, and made a 5% ($8,750) downpayment, the total loan would be approximately $166,250. At a 5% interest rate, the total monthly mortgage payment including loan principle, interest, property taxes, homeowner's insurance, and mortgage insurance would be approximately $1,235. About $109 of this payment would be mortgage insurance. Alternatively, if a buyer purchased a home for $400,000 and made a 10% ($40,000) downpayment, the total loan would be approximately $360,000. At a 5% interest rate, the total monthly mortgage payment would be approximately $2,625, and about $159/month would be mortgage insurance.

Wouldn't it be nice to erase that mortgage insurance portion of the payment and save some money? Here are the requirements for requesting the cancellation of your mortgage insurance on your primary residence:

• You must not have any "subordinate" loans. Basically you can not have a Home Equity Line of Credit (HELOC), 2nd mortgage, etc.
• You must have a good payment history -- don't make late payments!
• You must have been making payments on the loan for at least 2 (or more) years. Sorry...if you bought your house last year you have to wait...
• Your loan balance is either 80% of your original sales price, or you can demonstrate that your home has increased in value so that you have 20% equity.

So basically -- If you bought your Sacramento home for $175,000 2+ years ago, and you currently owe about $161,000 (based on my scenario above, the original financed amount of $166,250 would have been paid down to that amount), you must be able to demonstrate that your home is worth more than $200,000. The lender will determine the value either by an AVM -- a Zillow-like automated valuation tool, or you can do a full appraisal. You must provide a written request for cancelling your mortgage insurance. Call your loan servicing company and ask them where to send this request. Some will allow you to do this by fax and others will require it to be mailed. Specific criteria may differ from lender to lender, and mortgage insurance company to mortgage insurance company, so do your homework.

Given the current upward thrust of the Sacramento real estate market, many folks who financed a Sacramento area home 2 years ago will be able to make a strong case to their loan servicer that this monthly mortgage insurance be cancelled.

Another thing to note is that per the Homeowners Protection Act of 1998 (HPA), which covers single-family primary residences whose sales were closed on or after July 29, 1999 -- a borrower can request cancellation of mortgage insurance on the date the mortgage loan balance is first scheduled to reach 80% of original value, based solely on the initial amortization schedule of your loan (how it's paid down with your monthly payments), regardless of the outstanding balance of the loan. Again, you must request this of your loan servicer in writing and meet other criteria -- like timely payments.

If I can provide you with an estimate of your home's value to help you determine this, please send me an email to erin@erinstumpf.com and I am happy to provide you the data and a letter template to make your request to the loan servicer. If you have read my blog posts about tools like Zillow, you will know that I believe they are completely inaccurate (and for Sacramento homes, mainly just too low right now!).

Unfortunately, if you purchased with an FHA loan, you have a much longer wait (anywhere from 5 years, to when you pay off your loan, depending on when you made your purchase) to remove your mortgage insurance. Depending on your circumstances, if you have adequate equity and a good payment history -- it might just make sense to refinance your loan. One of my past FHA buyer clients is refinancing, transitioning from a 30-year FHA loan to a 15-year Conventional loan. He is lowering his interest rate, and getting rid of the MI, and his monthly payment is staying about the same! So basically he will own his home in half the time. Amazing...

Got an issue with a Fannie Mae Short Sale? Escalate the issue here...

Fannie Mae announced a new "HomePath for Short Sales" tool to help agents resolve short sale issues in a faster, more efficient manner.  This website provides a platform for a short sale "escalation" process and is available to any real estate professional working on a short sale involving a Fannie Mae-owned loan.

Fannie Mae "owns" or "is the investor" on many of the loans serviced by the big banks (and some smaller ones) like Bank of America, Wells Fargo, Chase, GMAC, CitiMortgage, Nationstar, etc. Often times, a while a loan servicer drives much of the short sale process, it is Fannie Mae that gets the final decision regarding the approval of a short sale. Click here to find out if your loan is owned by Fannie Mae.

So basically if you are having a challenge with a Fannie Mae short sale -- for example, the loan servicer isn't being responsive with a approval or rejection decision, a valuation was ordered but not completed in a timely manner, or the value of the property for sale was appraised higher than the market value, or a subordinate lien holder (2nd mortgage, home equity line of credit, etc) isn't cooperating -- open an inquiry with them and Fannie Mae will directly engage with the agent or loan servicer to address the issues. Keep in mind that you will need to be armed with SPECIFIC and detailed information regarding the transaction and the issue you are experiencing.

Agents can also use the new escalation process to receive a recommended list price from Fannie Mae prior to listing the property for sale, which is also awesome!

If you have your home listed for a short sale, the loan is owned by Fannie Mae (you can look that up here), and are experiencing issues -- encourage your agent to escalate the issue immediately. OR if you have a Sacramento home with a Fannie Mae-owned mortgage, be sure to list the home with an agent who is familiar with these escalation processes. If you are thinking about doing a short sale, of course I welcome your call to see if we are a fit to work together.

Sacramento Help for Homeowners Events - Coming March 20th, 2012

Sacramento homeowners who are struggling to make their mortgage payments will have the opportunity to meet face-to-face with their mortgage companies, as well as HUD-approved housing counselors, in an effort to assist explore foreclosure-prevention options and to move toward solutions to their mortgage problems.

Help for Homeowners Community Event
Tuesday, March 20, 2012 from 1:00pm – 8:00pm
Sacramento Convention Center
1400 J Street, Hall D
Sacramento, CA 95814

Free parking is available in the Memorial Garage (entrance on 14th and H Streets). It is highly recommended that you bring with you:

-Request for Mortgage Assistance form
-IRS Form 4506T and/or last two years of tax returns
-Monthly mortgage statement
-Information about other mortgages on your home, if applicable
-Two most recent pay stubs for all household members contributing toward mortgage payment
-Unemployment benefits award letter, if applicable
-If self-employed, the most recent quarterly or year-to-date Profit and Loss Statement
-Documentation of income you receive from sources (alimony, child support, social security, etc.)
-Two most recent bank statements
-A utility bill showing homeowner name and property address

Sacramento Short Sale Information

SB 458 Passes: NO Short Sale Deficiency Judgements on Second Trust Deeds (aka, Junior Liens) in California!

I have not noticed much media coverage for this, but on Friday, California Governor Jerry Brown on signed SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (passed and signed into law last year by Governor Schwarzenegger) to also include junior liens, aka 2nd mortgages. Both pieces of legislation state that a lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Prior to SB 931 and SB 458, only financing obtained at the time a home was purchased contained "anti-deficiency" protection -- meaning the mortgage lender could not pursue any action or have recourse to recoup their loss or "deficient" balance. Now these protections are extended to refinanced loans, and "junior" liens.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. In order to sell the home, the mortgage holder(s) must approve the sale because the amount owed is "short" of what is currently owed by the seller.

SB 458 contains an urgency clause making it effective upon signing (July 15, 2011)...so it now it would seem that any California short sale seller who closes their transaction successfully would have protection from recourse afterwards...good news for distressed property sellers!

I do many short sales in Sacramento, often times for sellers with multiple loans on their homes. This, combined with the state and federal "phantom income" tax relief, will certainly create a much more favorable environment for short sale sellers who already have financial hardships to get their properties sold -- one less thing to worry about.

This legislation was championed by the California Association of Realtors -- of which I sit on its Board of Directors. I have blogged before that we advocate on behalf of property owners since there is no "California Association of Home Owners." I am very pleased to see that we were successful in our efforts to help California (and specifically Sacramento-area) sellers who need to sell but are upside-down in the value of their homes.

Sacramento Short Sale Resources & Tools

Over the last couple weeks I have been compiling a Sacramento Short Sale Directory of sorts from my experiences dealing with the different loan servicers, loan investors, and short sale programs...so, if you are looking for information dealing with Sacramento Short Sales, there is now a section on my website aptly named "Short Sale Tools." Check it out! I have tried to make sure all the short sale information is relevant and up-to-date...hopefully you find it to be of value. I have negotiated short sales with MANY entities, and I will continue to modify and add to this directory over time. Cheers!

I am now a Certified HAFA (Home Affordable Foreclosure Alternatives) Short Sale Specialist!

On Monday of this week, I attended a day-long training at the Sacramento Association of Realtors to augment my existing knowledge of the HAFA (Home Affordable Foreclosure Alternatives) Short Sale Program. Overall, it was an informative course. Much of it was review of the history of HAFA, the procedural steps of the program, and a review of the timeframes and paperwork involved. So, I took the tests today, and I am officially a "Certified HAFA Specialist." I have successfully closed so many short sales in our Sacramento-area real estate market, I feel like having this certification is a bit of a formality, but perhaps it will provide my short sale sellers an additional level of assurance that I actually know what I am doing (aside from my numerous short sale seller client references, good track record, the mentoring I have given other agents, etc)!

I was Quoted in a Sacramento Bee Article about Short Sales

I spoke to Jim Wasserman of the Sacramento Bee briefly on Wednesday regarding the new Federal HAFA (Home Affordable Foreclosure Alternatives) Program that takes affect on Monday, April 5th. He used a few of my quotes for an article that appeared in today's SacBee about Short Sales.

The premise of the HAFA Program is good idea and all (to streamline the short sale process and provide financial incentives to lenders and sellers/borrowers for doing short sales)...and like the HAMP Program for loan modifications, I think that the implementation by the loan servicer participants, and overall effectiveness of HAFA will be slow and probably a bit clumbsy to gain any real momentum. I do not think the financial incentives offered to these servicers will be any major carrot for compliance with the program...

Apparently, all the of the loan servicers that are (voluntarily) participating in HAMP will be required to (voluntarily) participate in HAFA as well. There are many loan servicers that are working with the HAMP Program already - many of the major ones include Aurora Loan Services, American Home Mortgage Servicing, Bank of America (formerly Countrywide), JP Morgan Chase, CitiMortgage, GMAC, HomEq, Litton Loan Servicing, National City Bank (aka, PNC), OneWest Bank (formerly Indymac), US Bank, Wachovia, and Wells Fargo...there are several other small banks and credit unions on board.

I have spoken to many of the loss mitigation reps at all of the loan servicers I am doing short sales with (literally, reps from that entire list above), and most have never even heard of HAFA. Wells Fargo's loss mitigation department seems to aware of HAFA though, and seems to be restructuring itself a bit to get ready...but again, I think the roll-out will take a long while....and as I am quoted in the SacBee article, Wachovia has the smoothest short sale process out there already. Time will tell!