translation, we loan money to people who can't pay it back or else the government will sue us.
Posted on 09/29/2008 4:29:45 PM PDT by r-q-tek86
I bought a house 4 years ago with 10% down and pay PMI. I have paid off an additional 5% and have 5% more to go. It costs me roughly $130 a month but it is worth it. I am glad my bank required it because it proves they are a responsible bank. I work for them so I should know. ;o)
“In other words, the insurance only gets paid:
1) after default
2) after foreclosure and sale and
3) only if the lender can’t recover his costs from the sale.
Maybe our resident mortgage expert can comment.”
That’s exactly it. I wrote software in the 80s to file mortgage insurance claims. The only thing missing from this discussion is the fact that there were a dozen or so private insurers, plus FHA and VA.
That, and the fact that the insurance is for the lender’s benefit, not the homeowner’s.
The current cleanup will be complicated by the fact that some of the lenders and investors will have a hard time putting their hands on the paperwork, particularly the note. Makes foreclosure rather difficult.
Didn’t you know that making you financially responsible for a mortgage you acquire is racist?
I may be wrong, but my understanding is that in some cases additional creative financing was done where folks were getting 2 loans, one which gave the purchaser enough money for the 20% downpayment, which would allow them to get the 80%mortgage without PMI. Thus they actually had no equity in their home. 100% risk to the financial institution 0 risk to the purchaser.
I told my lender I refused to pay PMI. I succeeded by getting an 80/20 loan. My bank makes enough interest off me every month. They don’t need any more money from me.
“At what specific time during the great depression was that true? What percentage of homes even had a mortgage then compared to now?”
Most homes that had been purchased within the prior decade or so had mortgages BUT, and this is a big but:
In many cases, they were interest only, meaning, that some number of years would go by and the borrower would be compelled to refinance their mortgage or lose their home.
This was a little more common with farms, but was true with homes also. I use the word “refinance” and you probably think “hey no problemo”, they already have all my info, I just have to update my financials; I should use the wording “get a whole new mortgage”. Many times, the first lender just wasn’t all that interested in originating a new loan. And of course, conditons could have changed in any of several ways. Remember, the great majority of these loans were held on the books of the originator, they weren’t big moneymakers at all. In fact, they were generally a bookeeping hassle to the lender.
Secondly, those mortgages were in many cases callable, whereas mortgages today are essentially non-callable.
The solution to these problems that became common after the depression was the “standard” 20% down, 30-year self-amortizing loan, and it worked pretty darn well for a long time. When FNM was founded in 1938, the secondary mortgage market created thereby was a wonderful thing for the local banks who could sell off these loans and get their funds back. I have no real problem with the basic concept of FNM, it was actually very clever. The problem arose when FNM dropped the definition of a “conforming” loan. THen the whole system got polluted.
What is an 80/20 loan? Thanks!
It is 2 loans. You finance 80% of the total mortgage with one loan and the remaining 20% with a second loan. The 20% loan typically has a higher interest rate than the 80% loan.
translation, we loan money to people who can't pay it back or else the government will sue us.
Thank you! I think a friend of mine did the 80/20 thing. Sounds risky.
You don’t think it is greed that caused people to buy houses they couldn’t afford with no money down? I do.
very interesting information on this thread....
and what a MESS!!! :(
I think the question was where is the money that many did pay in? Forty years ago my loan did have PMI and we paid it. Where is all that?
Doesn’t an 80/20 loan also require a lie somewhere along the way? I remember having to prove in great detail the source of every penny of my down payment. I guess that was deemed to be too culturally invasive.
I suspect that a chunk of it went to Obama's election fund from the lobbyists.
It's insurance just like your car insurance. It covers losses, profits, and dividends of the issuer. It was paid by you to protect the interest of your lender.
Any idea about VA loans? More defaults than before? Is whatever fund they have in trouble?
Not that that last is a problem with us tax monkeys on the string but I thought I’d ask.
When I bought my first house 25 years ago I had to show 12 months of bank statements to prove that I didn't just borrow the money for the down payment. Things certainly have changed.
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