Reader Question: Monty, my daughter and son-in-law are trying to refinance their home to lower their interest rate. After my daughter contacted their mortgage company, the mortgage advisor said there would be no problem, and they could do it for eleven dollars. This is not their original mortgage company. After further checking, he informed my daughter that they could not refinance because there is a problem with their private mortgage insurance. He informed them his review reveals no company is holding their private mortgage insurance. According to their original loan documents, they agreed to pay one hundred ninety four dollars per month for this insurance, which they have been doing now for four years. They have made no payments late. If no one is holding their private mortgage insurance, where or to whom is the one hundred ninety four dollars going? The man at their mortgage company kept telling her that this is not hurting them (that private mortgage insurance is for the lender). This we understand. What happened to the original documents when her current mortgage company bought their mortgage a couple of years ago? Is there not some legal recourse? This seems like fraud. Laura F.
Monty’s Answer: Hello Laura. With no specifics on your daughter’s circumstances or of the sale of her mortgage instrument to the current lender, this is a qualified answer. It is quite possible the person your daughter is communicating with may be the problem. He is not taking any action to correct their concern. If the answers he provided to date are an accurate representation, he makes little sense. Refinance for eleven dollars? Who will pay for the new appraisal and other fees?
Regarding the disposition of the monthly insurance cost, if your daughter and son-in-law are paying the premium they do have private mortgage insurance. Typically, this insurance policy is paid by the lender but reimbursed to the lender by the borrower in their monthly payment. The lender should be anxious to educate any customer about this issue, or as you suggested, do we have illegal activity? I suspect it is an error on the part of the mortgage advisor, but stranger things have happened.
Not to be an alarmist, but several of the nations private mortgage insurance companies were forced into bankruptcy in the past couple of years. Those occurrences may be the source of the statement the mortgage advisor made about “no company holding their private mortgage insurance”. State insurance commissioners regulate private mortgage insurance. These commissions have stepped in and taken control of the bankrupt companies or another entity purchased their insurance contracts. Your insurer had an obligation to notify you that your carrier had changed. From a consumer’s point of view, nothing has changed. The policies those companies wrote continue to be serviced the same way they were before the real estate market collapse. What has changed is the formula under which these bankrupt companies pay the lenders for losses incurred on loans that default. You can learn more about the issues at the PMI trade association and the Freddie Mac (Pg. 49-45 SEC form 10-Q) websites.
My advice to your daughter and son-in-law is as follows:
1. They should prepare themselves for the potential they will have to invest time to sort this out. It may be as painless as one or two phone calls, but it could require some education, multiple calls, documenting the events and following up to assure actions promised by others are completed as agreed.
2. Read this linked article regarding the current environment in the mortgage industry in general and refinancing private mortgage insurance in particular. This is important, as it will provide them with information allowing them to ask the right questions, and, make the right decisions.
3. Then, contact the lender and request to speak to the manager to get to an individual with the authority, experience and knowledge to help correct this situation. If the lender is local, a personal visit to the main office with a copy of your private mortgage insurance agreement in hand may be in order. I expect that these two recommendations will go a long way toward rectify the error.
4. If these two steps do not produce results there are state and federal agencies that will accept and investigate your complaint. I do not know your state, but I would contact your state insurance commissioners office because they are physically and mentally closer to your daughter’s situation. The federal agency I would contact first is the Consumer Financial Protection Bureau (CFPB).
Laura, please let me know how this turns out. If you have other questions along the way ask me. I sincerely hope this task will be easy to rectify. Good Luck.