Advice in honor of 9-11-2001
My brother worked in the World Trade Center and was there the first time that a bomb went off, in 1993. He was not there on that fateful day in 2001. I dedicate this blog entry to those who banded together to help one another on that day, and to all those who lost their lives.
In real estate, the closest I got to a personal 9-11 story was regarding a buyer of mine who was selling her home. Her agent was told to expect an offer when the husband of an interested couple returns from a business trip to California. He never got to California that day. In the losses experienced by that widow, not buying the house was way down on the list, I'm sure.
Real estate is important to me, but at times it is important to realize that life is fragile. We are all just renting here on earth.
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Since I am talking about lenders this week, this is my advice on 9-11 is about insurance:
PMI, primary mortgage insurance, insures the investor against loan foreclosure without 20 percent equity to cover the resale costs. It does nothing for you. Borrowers with less than 20 percent down are required to pay for this insurance. The first “creative” financing that I saw was the 80/10/10 loans, where borrowers put down 10 percent, borrowed another 10 percent on a short-term note, then took a conventional 80 percent mortgage without PMI. Frequently, the payment on the additional 10 percent loan plus the 80 percent mortgage was less than a 90 percent mortgage with PMI.
Mortgage insurance. There are insurance products that will pay off your loan in the event that one or more of the principal borrowers dies or is disabled. This is a reassuring product, but it pays off less and less as time goes on and your loan debt decreases.
Life insurance. Homeowners with mortgages frequently purchase life insurance that can be used to pay off the mortgage in the event that one or more of the principal borrowers dies. This protects a remaining spouse or partner from losing the home.
The advice: if you own a home and you have a mortgage, you need to be responsible to those you could leave behind. Write a Last Will. Carry enough life insurance to pay off your debts so that your heirs can grieve you without falling into financial chaos.
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Since in the previous blog it was bandied about that the 20% number wasn't "the law" but a number banks seem to agree upon, that begs the question about PMI. Is it really "required", or is it another thing that is just agreed upon by the banks and lenders??
If creative financing wasn't prevalent, and everyone without 20% down was paying PMI, would that change anything about the current mortgage situation? Or would the banks just be 'loosing less money'?
John Mc,
PMI is not a law, it is a business practice. Those who do not have 20 percent down used to not be able to borrow for a home. PMI was developed to make the investors comfortable with the lower down payments.
Too many people think that PMI insures them, somehow. I felt that would be a helpful bit of info that it does not.
Charles's comment is beneath contempt.
when the mortgages were created, banks determined if they had to foreclose, the price that they needed to sell for was 20% below the price the market value. This would ensure a quick sale and get the non-performing asset off of their books. If they dont get the non-performing assets off their books, they are required to hold 2X the asset in reserves, thereby tying up their capital that they borrow from their customers via CD's. This is where the 20% down payment rule came from, to protect the traditional banks. When Wall St got involved in the late 60's, this all started to change, even more so once we hit the 90's to today. First private mortgage insurance was created to insure the difference between 80-100% financing and then the 2nd mortgage became popular because the banks and Wall St added the risk of the loan to the interest rate.
For all intensive purposes, today, 2nd mortgages dont exist except with local banks and lines of credit. Private mortgage insurance still allows financing up to 97% in some areas and is a tax deduction for most families.
In the end, capitalism and greed created private mortgage insurance, 2nd mortgages and the disaster that is the mortgage industry today.
Did you see the horrible news about today's Miami shootings with the masked gunman?
What are you talking about?
This blogger might want to review your comment before posting it.
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