chapter 14 mortgage default insurance, foreclosure, and title insurance
TRANSCRIPT
Chapter 14Chapter 14
Mortgage Default Mortgage Default Insurance, Foreclosure, Insurance, Foreclosure,
and Title Insuranceand Title Insurance
Chapter 14 Chapter 14 Learning ObjectivesLearning Objectives
Understand how each of the three Understand how each of the three different default insurance plans -different default insurance plans -VA,FHA, and private mortgage VA,FHA, and private mortgage insurance - operateinsurance - operate
Understand how state foreclosure Understand how state foreclosure laws differlaws differ
Understand the risk that is insured Understand the risk that is insured by title insuranceby title insurance
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Mortgage Default Mortgage Default InsuranceInsurance
Partial CoveragePartial Coverage Full CoverageFull Coverage Self-InsuranceSelf-Insurance FHA InsuranceFHA Insurance VA InsuranceVA Insurance Private Mortgage Insurance (PMI)Private Mortgage Insurance (PMI)
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HUDHUD
Insured Energy Efficient Loans Insured Energy Efficient Loans Insured Loans for RehabsInsured Loans for Rehabs Insured Loans for CondosInsured Loans for Condos Insured Loans for Disaster VictimsInsured Loans for Disaster Victims Reverse MortgagesReverse Mortgages FHA LoansFHA Loans Sells Foreclosed Homes With FHA Sells Foreclosed Homes With FHA
LoansLoans
FHA LoansFHA Loans
Analyze Credit Risk to Minimize Analyze Credit Risk to Minimize ForeclosureForeclosure
Factors Analyzed IncludeFactors Analyzed Include Loan Amount Loan Amount Settlement CostsSettlement Costs Credit HistoryCredit History Income Income Housing ExpenseHousing Expense
FHA LoansFHA Loans
U.S. citizenship not required. U.S. citizenship not required. House must be in the U.S. and House must be in the U.S. and must be principal residencemust be principal residence
High-cost limit for one-family High-cost limit for one-family residence is $290,319residence is $290,319
For-non-high-cost areas, the limit is For-non-high-cost areas, the limit is 48% of the FHLMC conforming loan 48% of the FHLMC conforming loan limitslimits
FHA Loan LimitsFHA Loan Limits
$160,176$160,176 One UnitOne Unit $205,032$205,032 Two UnitTwo Unit $247,824$247,824 Three UnitThree Unit $307,992$307,992 Four UnitFour Unit
FHA LoansFHA Loans MIPMIP
Up-front payment plus an annual Up-front payment plus an annual premium paid monthlypremium paid monthly
Starting January 1, 2001 the up-front Starting January 1, 2001 the up-front premium Is 1.50% and the annual premium Is 1.50% and the annual premium Is 0.5% of the outstanding premium Is 0.5% of the outstanding balancebalance
Borrower can suspend the premium Borrower can suspend the premium payment when the loan-to-value ratio payment when the loan-to-value ratio reaches 78% of the original purchase reaches 78% of the original purchase priceprice
FHA LoansFHA Loans
HUD does not regulate the contract HUD does not regulate the contract interest rate or the amount of interest rate or the amount of discount points paid by the borrower discount points paid by the borrower
A discharged veteran with a A discharged veteran with a certificate of veteran status can certificate of veteran status can finance 100% of the purchase pricefinance 100% of the purchase price
FHA Loans: Determining FHA Loans: Determining The Loan AmountThe Loan Amount
Price $50,000 or Less: 98.75% of Price $50,000 or Less: 98.75% of the appraised value or sale price the appraised value or sale price whichever is lesswhichever is less
Price > $50,000: 97.75% of lesser Price > $50,000: 97.75% of lesser of appraised value or sale priceof appraised value or sale price
FHA LoansFHA Loans
Loan-to-Value ratio is limited to Loan-to-Value ratio is limited to 85% with family relationship85% with family relationship
House goes from principal House goes from principal residence to rental, L/V must be residence to rental, L/V must be reduced to 75% based on current reduced to 75% based on current appraisalappraisal
Payment/Income RatiosPayment/Income Ratios PITI PITI 29%29% PITI + Other Expenses 41%PITI + Other Expenses 41%
FHA LoansFHA Loans
No mortgage assumptions after No mortgage assumptions after December, 1989December, 1989
Non-Qualifying assumptions before Non-Qualifying assumptions before December 1986December 1986
Will finance mobile homes Will finance mobile homes Offers RAMsOffers RAMs
62 years old62 years old Own homeOwn home Principal residencePrincipal residence
FHA LoansFHA Loans
Offers ARMsOffers ARMs TB Yield, 1/5 Caps, 2.00 MarginTB Yield, 1/5 Caps, 2.00 Margin
In foreclosure, get an appraisal In foreclosure, get an appraisal then decide whether to take titlethen decide whether to take title
Also offers graduated payment Also offers graduated payment loansloans
FHA LoansFHA Loans
3% equity investment required, does 3% equity investment required, does not have to be down paymentnot have to be down payment
Can refinance up to 97% of the valueCan refinance up to 97% of the value No credit history requiredNo credit history required Mortgage refund- MIP is paid in full at Mortgage refund- MIP is paid in full at
closing. Refund time limit is 6 years closing. Refund time limit is 6 years from loan payofffrom loan payoff
With a foreclosure, borrower must wait With a foreclosure, borrower must wait 3 years from date of claims payment3 years from date of claims payment
FHA LoansFHA Loans
With Chapter 7 bankruptcy, With Chapter 7 bankruptcy, borrower must wait two yearsborrower must wait two years
With Chapter 13 bankruptcy, With Chapter 13 bankruptcy, borrower must be paying for one borrower must be paying for one year and be in good standingyear and be in good standing
FHA LoansFHA Loans
FHA Streamline Refinancing FHA Streamline Refinancing Less documentationLess documentation Existing FHA loanExisting FHA loan Not delinquent Not delinquent No equity cash outNo equity cash out W/O appraisal if new loan amount is W/O appraisal if new loan amount is
not more than old loan and no costs not more than old loan and no costs are added inare added in
FHA LoansFHA Loans FHA RAMFHA RAM
Age 62 or older Age 62 or older No repayment as long as you occupy the No repayment as long as you occupy the
househouse Borrower pays insurance premiumBorrower pays insurance premium 2% MIP instead of 1.50%2% MIP instead of 1.50% Loan amountLoan amount
AgeAge BorrowBorrow 6565 26% of Value26% of Value 7575 39% of Value39% of Value 8585 56% of Value56% of Value
VA LoansVA Loans Started in 1944Started in 1944 Provides mortgage loan guarantees for Provides mortgage loan guarantees for
principal residencesprincipal residences Guarantees only a portion of the loanGuarantees only a portion of the loan No down payment may be required No down payment may be required Funding fee varies with down paymentFunding fee varies with down payment >95%- 100%>95%- 100% LoanLoan 2%2% >90%- 95%>90%- 95% LoanLoan 1.50%1.50% 90% or Less90% or Less LoanLoan 1.25%1.25% Fee is waived for service related disabilityFee is waived for service related disability
VA LoansVA Loans
Must have eligibility and entitlement Must have eligibility and entitlement Eligibility- Minimum active duty, 90 Eligibility- Minimum active duty, 90
days for “ Hot War”days for “ Hot War” Maximum Entitlement- $60,000Maximum Entitlement- $60,000 Ginnie Mae requires a 25% guarantyGinnie Mae requires a 25% guaranty Non-assumable since 1988Non-assumable since 1988 Release of liability versus Release of liability versus
entitlement restorationentitlement restoration
VA LoansVA Loans
Follows HUD/FHA foreclosure Follows HUD/FHA foreclosure procedureprocedure
Contract interest rate is not Contract interest rate is not regulatedregulated
Offers ARMsOffers ARMs TB Yield, 1/5 Caps, 2.00 MarginTB Yield, 1/5 Caps, 2.00 Margin
VA will finance mobile homesVA will finance mobile homes
Private Mortgage Private Mortgage Insurance (PMI)Insurance (PMI)
Private insurersPrivate insurers Insures top portion of loanInsures top portion of loan Pay claim and take title or just pay Pay claim and take title or just pay
losseslosses Homeowners Protection Act Of 1998 Homeowners Protection Act Of 1998
requires lenders to cancel PMI requires lenders to cancel PMI automatically when L/V is 78%automatically when L/V is 78%
After July 29, 1999 can be cancelled at After July 29, 1999 can be cancelled at 80% L/V of original property value80% L/V of original property value
PMIPMI
Other requirements for cancellation:Other requirements for cancellation: No payment more than 30 days late in No payment more than 30 days late in
last 12 monthslast 12 months No payment more than 60 days late in No payment more than 60 days late in
last 24 monthslast 24 months Property value has not declinedProperty value has not declined Protects conventional mortgages and Protects conventional mortgages and
cannot be required with 80% or less L/V cannot be required with 80% or less L/V ratioratio
PMIPMI
Some borrowers do “ Piggyback” Some borrowers do “ Piggyback” loans called 80-10-10s to avoid PMIloans called 80-10-10s to avoid PMI
80%80%First MortgageFirst Mortgage 10%10%Second MortgageSecond Mortgage 10%10%Down PaymentDown Payment
Foreclosure LawsForeclosure Laws
Judicial Foreclosure Judicial Foreclosure Court judgment against borrower allowed Court judgment against borrower allowed
in all statesin all states Power of SalePower of Sale
Foreclosure proceeds without a court order Foreclosure proceeds without a court order Usually with the deed-of-trustUsually with the deed-of-trust
Equitable Right of RedemptionEquitable Right of Redemption Redeem the property before the saleRedeem the property before the sale
Statutory Right of RedemptionStatutory Right of Redemption Redeem the property after the saleRedeem the property after the sale
Deficiency JudgementDeficiency Judgement
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Title InsuranceTitle Insurance
Insures Good TitleInsures Good Title Title SearchTitle Search
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