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.

Ask Erin: What happens to my short sale if my loan servicing is transferred to another company??

I listed a short sale in Orangevale a few weeks ago...at the time I listed the house, the loan was serviced with Bank of America and the sellers and I were navigating our way through their "Co-Operative" short sale listing process (where we complete a few steps in advance in order to list the property with a pre-approved short sale price). Then something happened...we were notified of an upcoming "Service Transfer" and the loan would be moved from Bank of America to another lender for servicing. Huh?

This does happen from time to time. Bank of America, like many other large lending institutions, services mortgage loans for hundreds of investors. An "investor" could be Fannie Mae, Freddie Mac, a hedge fund, another bank, etc. As a part of normal loan servicing, these investors may opt to release or transfer servicing from one company to another company.  In most cases, once the servicing transfer occurs, the short sale process ends with Bank of America and the homeowner must contact the new servicer to start navigating that company's short sale process.

When I list short sale property, I generally talk about the possibility of this happening with the seller. This is not a really common occurrence mid-transaction (this has happened only 4 times out of all of the 100+ short sales I have worked on), but a servicing transfer is a risk that may occur at any time during the short sale process -- EVEN after a short sale has been approved! This is one of the reasons why it is important to move as quickly as possible to facilitate a short sale.

Generally, if your loan is going to be transferred from one servicer to another, the current servicer will send the homeowner a letter 15 days before the servicing transfer date. The lender may or may not contact the listing agent -- so short sale sellers PLEASE open your mail and keep your agent in the loop as far as what the communications say! The new loan servicer will send a introduction letter to the seller with a new loan number and payment or collection info. One thing to note -- before you send ANY payment or personal information to the new servicer, please call them to verify that your service has been transferred and the new mailing address. Some fraudsters will send bogus letters in an attempt to get you to mail them money or steal your identity! If an offer has already been accepted on your short sale, a closing has been set and an approval letter issued, the new servicer will determine if the short sale will continue. Unfortunately the new servicer may not be obligated to honor the approval.

New Listing - 6100 Palmaya Lane, Orangevale, CA 95662

Well maintained 3 bedroom, 2.5 bathroom, 1,426 square feet Orangevale home on .14ac lot in a lovely gated community! You will love the open floorplan, spacious kitchen with tile counters and breakfast bar, master suite with amazing bathroom, large rooms, extra storage, backyard is one of the largest in the neighborhood! Low HOA dues! Offered at $195,000, subject to lender approval of short sale. For more photos and information, please visit 6100 Palmaya Lane, Orangevale, CA 95662.