Years ago before I was a Seattle real estate agent, my husband and I bought our first house in the Seattle suburbs via an FHA loan. We had no idea what so ever as to what we were doing and I hated not being able to control every single aspect of the transaction. OK, so I am still that way as far as the control freak aspect, but I know a lot more about the process obviously! We had a very interesting thing happen and I wanted to share so that others can learn from this one (without naming names).
We had little money to put down and were required to get a loan that took out mortgage insurance (PMI). This included a huge chunk up front in our closing costs as well as a substantial amount each month. After four years of paying the PMI and after being a real estate agent, I learned that you can get the PMI dropped. I realized that we had enough equity in our home to warrant removing the PMI (PMI is usually put in place to protect the lien holder in case of default when a buyer has less than 20% to put down on a sale),so I started calling the mortgage company to try and get information on removing the mortgage insurance. I wanted to reduce our payment by that PMI monthly premium. What I found out was shocking.
The mortgage company was quite hesitant to even talk to me about removing the mortgage insurance and tried to persuade me into a refinance instead, but I persisted. After nagging them for weeks, the mortgage company finally gave me my account numbers and told me I needed to call the people in charge of my mortgage insurance policy. I did and when I gave them my “policy number” I was told that this policy did not exist. I went back and forth in a circle between both of them via the telephone and mail for another few weeks before it was finally discovered that:
The mortgage company had collected the upfront premium as well as the monthly premium and then forgotten to actually take out the mortgage insurance policy. After four years, they still had not taken the PMI policy out on my loan! Just to give you an idea of how much money I am talking about, it was almost four thousand dollars! Four thousand dollars! Who loses that? Now I have my accounting degree and have done the books for companies so I am wondering one thing: Where could that money possibly have been applied to?
Obviously, they dropped the PMI “coverage” and payment amount from my monthly bill, but guess what else I learned from FHA? If your mortgage company does not take out a mortgage insurance policy on your loan, they have to refund that money to you IN FULL. Yee haw! Not yet. It took at least another six months to see that money and I had to fight for my right to it. When the mortgage company refused, I sent a letter to everyone I could think of including the Office Of Thrift Supervision’s Consumer Affairs Department. This apparently did the trick because while admitting no wrong doing at all, the mortgage company referenced my letter to the Office of Thrift Supervision and agreed to refund my money in full as “a gesture of customer goodwill”. HMMM
Are you trying to remove PMI coverage? Be persistent! Keep an eye on the comps around you and don’t be afraid to really argue your case!
Courtney, great article. I would recommend that BEFORE a borrower proceeds with any loan that has mortgage insurance, they find out what the terms of cancellation are because it may vary from loan to loan.
Rhonda! Hi! This is so true and you are the expert! Did you see that I link to you in my links?
[...] FHA is Back: Mortgage Insurance? Here is One Story That Will Get …We had little money to put down and were required to get a loan that took out mortgage insurance (PMI). This included a huge chunk up front in our closing costs as well as a substantial amount each month. After four years of paying the … [...]
[...] FHA is Back: Mortgage Insurance? Here is One Story That Will Get …We had little money to put down and were required to get a loan that took out mortgage insurance (PMI). This included a huge chunk up front in our closing costs as well as a substantial amount each month. After four years of paying the … [...]
[...] FHA is Back: Mortgage Insurance? Here is One Story That Will Get …We had little money to put down and were required to get a loan that took out mortgage insurance (PMI). This included a huge chunk up front in our closing costs as well as a substantial amount each month. After four years of paying the … [...]