We get asked all the time "what is mortgage insurance?" On the surface, you would think that since it is called insurance and you a paying the premium, that it insures you in some way. Unfortunately, that's not the case. It only protects the Lender.
In short, mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. Essentially, the mortgage insurance premium is an insurance policy required by the government as added protection in the event that the Consumer defaults on the loan. You are required to pay this premium monthly for the life of the loan. The only way you can get rid of it, is to refinance to an un-insured loan. This may be changing!
A little history lesson.....
In 2001, the FHA cancelled required MIP on loans when the outstanding principal balance reached 78% of the original principal balance. However, FHA would still remain responsible for insuring 100% of the outstanding loan balance throughout the entire life of the loan. Then the housing crisis hit in 2007-2008 and everything went to hell in a hand basket. So many people defaulted during this time. As a result, the MMI Fund had foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.
Fast forward to 2013 when the FHA announced it would require most borrowers to continue paying annual premiums for the LIFE of their mortgage loan. Yuck.
Today, there is a glimer of hope!
Last week, two bills were introduced in the House that would provide for reductions in the fees borrowers pay on FHA-insured mortgages.
Making FHA More Affordable Act of 2019 This bill will eliminate FHA's current lifetime mortgage insurance premium policy, and allow FHA buyers to cancel their mortgage insurance when the loan-to-value ratio reaches 78%; and the
Housing Financial Literacy Act of 2019 This bill will permit first time buyers who have gone through approved counseling to lower their FHA mortgage insurance premiums.
This could be a game changer for a lot of homeowners! We will continue to monitor the progress of both bills and hopefully soon can announce the passage of same!
Happy Monday y'all!
Danielle Childers, BIC