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ALL THINGS REAL ESTATE

Private mortgage insurance a matter between bank, insurance company

Q: First off, I’d like to tell you how much I enjoy reading your column. I’ve learned a lot about real estate and the mortgage process through it. We refinanced our home loan with a new lender and closed last March. On our 2011 Annual Tax Statement I noticed the amount paid for PMI was $0. Knowing that we do have PMI on our loan, I called the lender and they informed me they would investigate and get back to me, which they never did. I called a few days later and they admitted it was an error on their part and they were still working to resolve it. In the meantime, I went through my monthly statements and noticed PMI payments had never been deducted from our escrow account since the loan was established. This, of course, caused an overage in our account of over $2,800.

Nearly two weeks later I get an escrow analysis statement from the lender showing the $2,800 overage was to be deducted from my account as an anticipated payment. I called the lender again and they informed me the $2,800 was to be paid to the PMI company to reinstate our policy. Turns out the policy was not processed correctly at the close of our loan so it was never finalized with the PMI company. I thought it was a little odd to have to pay back premiums on coverage that never existed in the first place so I asked the lender if there was a way to know these funds would actually be paid to the PMI company and not end up in someone’s pocket and basically was told there is no way for me to know because PMI companies only deal with the lenders.

I contacted the PMI company and was told the last payments they received were from my former lender back in February 2011 when my policy was canceled and I have no current policy with them. They did verify that my current lender had just requested a reinstatement on my policy and confirmed that the lender had to pay the $2,800 to “catch me up” and it was totally legitimate. When I asked why payment had to be made on a policy that didn’t exist, they ended the conversation with, “You

will need to contact your lender for any other questions.” When I asked my lender this same question, they said my policy was not canceled but just inactive and had to be paid up to date to reinstate it.

Tim Jones I know private mortgage

insurance is for the benefit of the lender but since it’s coming out of my pocket, shouldn’t I have the right to know if it’s being paid properly and not ending up in someone else’s pocket? Have you ever heard of anyone else having this issue and if so, is it standard practice for mortgage insurance companies to request back payments before the policy can be reinstated?

A: Private mortgage insurance (PMI) is something millions of homeowners have and aren’t even aware of. While there are numerous variations on the theme, the purpose of PMI is to insure your mortgage company against any losses they would incur if you failed to pay back your mortgage loan. Remember the AIG bailout? That was in large part because AIG was insuring mortgages that went bad, and the company was going to go broke trying to pay the insured banks’ claims. Fortunately for them, though not for us taxpayers, they were simply too big to fail. But that’s for someone else’s column. When you signed the paperwork to close your loan, you agreed to make the insurance payments on the bank’s behalf. Whether or not there was actually any loan coverage wasn’t, believe it or not, any of your business. This process really isn’t any different than the title insurance policy you also bought for the bank. You may not be aware of it, but you probably paid around $1,000 for your title company to give an insurance policy to the bank that guaranteed the status of title on your house. However, it also offers you, as the homeowner, a lot of protection. The constant confusion with PMI is it would seem that you, the borrower, is the PMI company’s customer. You aren’t. You’re just footing the bill. And that’s See Jones, Page 4