Lender Paid Mortgage Insurance

by Mercy from Washington USA

Ask Kate: Lender Paid Mortgage Insurance (LPMI) - Did my lender disguise mortgage insurance by increasing my interest rate? Hi Kate, Back in 2003 I refinance from a FHA loan with mortgage insurance into a "Conventional Uninsured" loan using the same nationwide lender.



When I refinanced, I specifically was told that they would drop the PMI because I was an existing customer.

Last week, I received a letter from my lender saying that when I took out my mortgage, "I chose" Lender Paid Mortgage Insurance which is built into the interest rate. (The context of the letter was to say that since my Loan to Value is now less than 78%, I might consider refinancing in order to drop the LPMI.)

I never agreed to LPMI, and I reviewed my closing documents and there is not a single mention of it. I called them and they said their system does not give them a breakdown of the LPMI amount.

I want to find out for sure whether or not I'm paying LPMI, and if so, how much. And if so, I believe I have been wronged, and have been paying too much interest for 6 years.

Do you have any suggestion on how I should proceed to straighten this out? Thank you very much! Mercy

Kate Answers: Lender Paid Mortgage Insurance (LPMI)

First of all Mercy, a little background on mortgage insurance. MI is not automatically removed upon refinancing from an FHA loan to a conventional mortgage nor because a homeowner is an existing customer.

In actuality, the decision to charge MI is based on a ratio of the loan amount to the appraised value, referred to as LTV. With more than 20% equity, the bank cannot charge mortgage insurance.

LPMI is a lesser known method of paying mortgage insurance. The interest rate is increased versus the addition of mortgage insurance to the monthly payment, Borrower Paid Mortgage Insurance.

Pros and Cons For The Informed Homeowner

There are pros and cons to each method of payment. Advocates of LPMI point out that Lender Paid Mortgage Insurance generally costs the homeowner less than Borrower Paid Mortgage Insurance. However, refinancing is required to remove LPMI making it objectionable to critics.

Sometimes borrowers do not have a choice if they want or need a particular mortgage. Programs that accept LPMI frequently do not allow for Borrower Paid Mortgage Insurance.

Now back to your dilemma, Mercy. Assuming you refinanced less than 80% of the value of your home in 2003, were you charged Lender Paid Mortgage Insurance in error? If so, how can you prove it for reimbursement?

Choices For The Savvy Borrower

  • Peruse your loan documents with a fine tooth comb. If you are convinced you're paying LPMI in error, address the matter directly with your lender for a resolution.

  • If this does not bring satisfaction, you have the right to obtain legal counsel to pursue the matter on your behalf.

  • You could also look into refinancing to a lower interest rate with another lender.

But should you refinance? Here are my fresh refinance ideas. Only you can decide!

If you still have questions about Lender Paid Mortgage Insurance, write me at Ask Kate where every question is a good question.

Mercy, I depend on word of mouth! I hope you'll spread the word by sharing my websites with your friends.

Best wishes,

Ask Kate how to get the best mortgage rates
Ask Kate

Finally! PMI Answers You Need

What Is PMI - Could private mortgage insurance be your solution to equity and down payment problems? 2013 Update: Deductible mortgage insurance premiums.

Updates on HARP 2.0 Refinance with Borrower and Lender Paid Mortgage Insurance - PMI and LPMI.

Could you be entitled to a mortgage insurance refund from FHA?

How do lenders calculate PMI? Credit history, amount of down payment or equity, occupancy status, and loan type factors.

How Do I Cancel PMI Will refinancing or a new appraisal be required?

What to do if PMI Decision Making is getting in the way of refinancing or buying a house.

My name is Kate and I will be your guide - PMI Questions and Answers


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Comments for Lender Paid Mortgage Insurance.

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Fannie Mae Financing without Mortgage Insurance
by: Felipe V. from San Antonio, TX, Bear county

My question is I was told that you have the option on financing without mortgage insurance with Fannie Mae. But the draw back is that you would pay a slightly higher interest rate.

Is this true and by what percentage would it be higher on average? Thank you.

Hi Felipe, Kate here.

Yep, amazingly accurate! This is called Lender Paid Mortgage Insurance (LPMI).

It is a misnomer to claim there is no mortgage insurance. And it is NOT paid by the lender! (Who fabricated this terminology?) In fact there IS MI and YOU pay it!

The amount your interest rate is raised to pay for the insurance will depend on your credit score and down payment. I'd plan for .75% to 1.25% at least.

Here's a potential drawback. In spite of gaining equity in your property (especially since you live in Texas), the LPMI might not EVER be removable unless you pay off the mortgage through refinance or selling the property.

Not to say it couldn't be a good deal. But to know, you have to ask for the terms, in writing, and study the fine print.

Keep your eyes wide open and proceed cautiously.

Best wishes, Kate

Thanks again to our friend Jill
by: Kate

Jill,

We all appreciate your input here. I know from our conversations how much your mom influenced your outlook on credit responsibility.

Thanks for taking the time to assist your fellow homeowners.

Kate

More Help For Mercy - Sorting Out LPMI
by: Jill

Just read your response to a reader about LPMI. I really like your approach. You give "context" and a clear definition of what the "terms" mean, then talk about the process that the banks use and what conditions exist that cause what the reader is experiencing.

Excellent stuff.

Solutions to the reader's problem whether refinance or legal counsel, both carry an additional cost. I guess the trick is to really be clear about the structure of the loan before these type of problems arise.

I think of Ronald Regan's notion of "trust but verify", or the one I use, "inspect what you expect".

It would seem that the reader might have asked that there be language that states the LPMI is not part of the deal, or at least document conversations about how, if, and when LPMI applies. Basically what are the "right questions" to ask upfront, to save on headaches later.


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