Mortgage Insurers helping those in Hardship

When homeowners are in trouble with their mortgage, they typically turn to paid "mortgage fixers" or nonprofit housing counseling services. Though many are finding help from their Private Mortgage Insurance company or PMI for short.

What is Primary Mortgage Insurance?

PMI, or Lenders Mortgage Insurance, is an insurance policy payable to a lender or trustee for the pool of securities involved in a mortgage loan. Its purpose is to offset the losses when a mortgagor is not able to repay their loan, and the lender is unable to recover their costs after foreclosure or sale of the property.

This type of insurance is typically required by a lender to protect their investment in your home if you made a down payment of less than 20% on your home. For some, it may be required for a fixed period of time, and others may be required for the lifetime of the loan.

How are PMI Companies Helping Homeowners?

PMI companies are starting to put themselves in the shoes of homeowners and working with homeowners to try and keep them in their homes. PMI Group, a California-Based PMI company offers a no-interest loan to help certain borrowers catch up on mortgage payments that are in default. Another company, Genworth Financial now offers a "Job-Loss Protection" clause in their policy that pays up to $2,000 per month towards the mortgage payment of a homeowner after losing their job.

Some are taking even further steps by working with homeowners to see if they qualify for a loan modification under the government's Making Home Affordable program and working with them through the program. If the homeowner cannot get their loan servicer to help with the paperwork, companies like Genworth may step in to help process the paperwork and streamline it to the servicer for approval.

How it Benefits the PMI Company

These programs are of course designed with one basis in mind, to reduce the potential losses of the private mortgage insurer. A typical default may cause a PMI company to pay out on an estimated 35% of a home's value currently.  A good run on any insurer from these defaults could mean catastrophe in the market.

Doing the Math to Understand Their Risk

On a $150,000 mortgage, this could come out to a loss of $52,500 for the insurer.  The average cost per $100,000 insured is $55 a month. This would equate to just under $1,000 a year. If this homeowner defaulted, it would take over 52 homes that don't default to break even.  With foreclosures on the rise, the risk to these PMI companies increases, and with the numbers not in their favor, you can see how it makes sense, for these companies to work with homeowners to mitigate their risk.

The Limitations of the Programs

As you can expect, PMI companies are doing this to mitigate their risks, while helping homeowners. In order to qualify for some of these loan offerings by your PMI company, you must prove that your delinquency was the result of a temporary reduction in cash flow and that you have a good prospect of repaying the loan. You must also continue to make payments to your mortgage during this time.

In the case of Genworth Financial's program, their "Job-Loss Protection" program is only valid for those who have closed their loan within the past three years. According to a company spokesman for Genworth, about 10% of the company's loans who are eligible are taking advantage of the program. However, expect that as the costs of these programs climb higher, further restrictions and requirements may be imposed.

By: Favian Clai