PMI-Agencies and Plans

Transcription

1 Mortgage Insurance Premium PMI-Agencies and Plans MIP means Mortgage Insurance Premium. This is the amount a borrower pays to insure the lender against loss. This premium is totally for the benefit of the lender. There are three major types of mortgage insurance. First - The first type of mortgage insurance came about when the Federal Housing Administration started insuring high ratio loans. This insurance plan is called Mutual Mortgage Insurance Premium, commonly called MMI, MIP, FHA, and possibly other terms. This was the amount of insurance paid by the borrower on a monthly basis. FHA has changed the payment of insurance premiums from a monthly fee to a single premium, and now to a combination up-front fee and an annual premium. The up-front fee can be paid in cash or added to the loan and financed over the term of the loan. The amount that can be financed depends upon regulations.. Second - The second type of mortgage insurance is offered by private insurance companies. These are called PMI (Private Mortgage Insurance) companies. These companies, located throughout the United States, are approved by various state insurance commissioners and have received approval as an acceptable carrier for loans sold to Fannie Mae or Freddie Mac. Third - There are additional mortgage insurance carriers in the broadest sense of the term. These would be SBA (Small Business Administration), USDA/RHS (Rural Housing Service), and the more common VA (Veterans Administration) insurance carriers. SBA and USDA/RHS loans are not being addressed at this time. A VA loan can be insured or guaranteed. However, the insured VA loan has not been used to any great extent. Most VA loans are guaranteed loans. In recent years, the Veterans Administration started collecting a fee for guaranteeing a VA loan. A VA guarantee is not the same as other types of MIP plans; but for computing the fee, Mortgage Computer uses the MIP features of the program for setup and administration. MIP Insurance The purpose of MIP insurance is to insure the lender against loss, should the loan go into default. The risk in a real estate loan is the amount of the loan that exceeds the sales price plus costs to sell the real estate. With a 7% to 8% real estate commission and additional selling expenses from 3% to 8% of the sales price, loss of income on your funds, and damage to the property, a lender should not loan more than 80% to 85% of the sales price in order to fully protect the asset in the event of default. However, most home buyers have not been able to save 20% of the sales price for the required down payment, plus the closing costs of 4% to 8%. Mortgage insurance is insurance for the lender to protect the high ratio loans against default of the top 10% to 30% of the loan amount. If a lender would make a conventional loan of 80% to value without insurance, there would be no need for the lender to insure the entire loan. 112

2 FHA insurance insures the loan until the loan is paid in full or for a specific number of years. If the loan is prepaid, there could possibly be a refund to the borrower of the premium paid. PMI companies insure the top amount of a loan. Regulations require a lender to terminate PMI insurance when the loan reaches 78% loan-to-value based on the projected scheduled date at time of closing. The termination, of course, is based upon the condition the loan is current. The regulation also permits the borrower to request termination when the unpaid loan balance is paid down to 80% loan-to-value ratio. The lender has the option to terminate if the value of the property substantiates the 80% value and the payment history of the borrower has been acceptable. If PMI cannot be terminated at the 80% request, the lender will notify the borrower that PMI cannot be terminated. The regulation also requires the lender to terminate PMI insurance if 78% has not been reached by the midpoint of the payment term. The lender is required to notify the borrower of the termination. First Mortgages Secured by 2-4 Family Principal Residences or 1-4 Family Investment Properties There are loans where the borrower has the right to request PMI be cancelled on or after the date the mortgage balance reaches 70% of the original property value. Original value means the lesser of the contract sales price of the property or the appraised value of the property at the time the loan was closed. If the loan is current on loan payments, PMI will be terminated on the first day of the month after the date that is midpoint of the mortgage amortization period. Investors of mortgages set limits as to the insurance coverage and which PMI companies are acceptable. A portfolio lender should set their company policy the same as required by Fannie Mae or Freddie Mac. Mortgage Computer Terminology To understand the Loan Processing program, it is necessary to define some terms used by Mortgage Computer. The definition may not be universally accepted, but it describes how the feature in the Loan Processing program will function and operate. MIP - A broad meaning of all plans and programs regardless of the company or government agency. Mortgage insurance premium is paid by the borrower for any type of insurance plan. The broad usage being any type of mortgage insurance premium. PMI - The mortgage insurance policy issued by a private carrier and the insurance premiums paid to a private insurance company. AGENCY - Agency through which insurance is issued by various government agencies, e.g., FHA, VA, SBA, or other types of insurance that may come about in the future. FHA - The mortgage insurance carried by the Federal Housing Administration. The mortgage insurance premiums are paid to the Federal Housing Administration on a monthly basis or as a single-premium installment. MIP PLAN - MIP plans are the terms, amount charged for the insurance or VA guarantee, the amount of coverage, the stop percentage, and whether the plan is a level, declining, or single premium. 113

3 How to Set Up and Use MIP in the Loan Processing Package MIP has to be computed and becomes part of the monthly payment or up-front payment along with other closing costs. This amount becomes part of the finance charge which affects the annual percentage rate (APR). Mortgage Computer has incorporated into the program the ability to set up various MIP plans. The computer performs the task of computing the amount of premium. The monthly installment for the insurance is included in the payment schedule. Why Set Up PMI-Agency Plans? As with other MC features, MIP plans are designed to increase the efficiency and reduce the chance of errors by your staff. Setting up plans allows the program to compute the MIP, reducing the amount of time required to calculate the cost, compute payments, and include the amount in the APR. PMI Agencies and Plans is where the Loan Processing operator can set up the various plans, the percentage of the loan amount to be paid as the premium for various types of plans offered by either PMI companies or agencies, and the stop percentage. PMI Plans A lender must be approved to submit loans for insurance through a private mortgage insurance company. Approval is usually fast. Each company will offer various plans and rates. A copy of the rates is provided by each company. Select the plan or plans you will offer. Some companies set up plan numbers for each of the various offerings, while other companies do not. To distinguish one plan from another, a customer must establish a plan number for the various rates to be offered. Either select the plan number assigned by the company or assign your own number for the plans. FHA - Agency Plans The insurance plans are established by the various regulatory agencies. The plans are usually limited to a few. The premium for the various plans can be obtained from the Federal Housing Administration, Veterans Administration, or other government agency supervising your district. Maintenance The first step is to select the company or government agency that will insure the loan. Each company or agency must be assigned a company code. The company code is set up by assigning a two-digit number. Numbers 01 through 49 are used for PMI companies. All companies acceptable to Fannie Mae are assigned a code number. MC suggests that you use the same number for your companies as used by Fannie Mae. This will insure that, if you ever sell loans to Fannie Mae, your code will be compatible with Fannie Mae. Company code numbers 50 through 59 are reserved for FHA. Even though there is only one FHA, each state or region within a state can have a different regional FHA office, offering various plans, rates, etc. FHA lending policies can change from office to office. MC has structured the program to provide for those companies that originate loans in various states. These loans could have different MIP premiums even though they are all FHA insured loans. MC reserves the numbers of 60 through 69 for VA plans. 114

4 Once set up, the screen will display the companies listed. You may select an existing company or create a new company. Setting Up an MIP Plan After the company is selected, choose the plan or plans that are acceptable to your company or investors. The plans describe the percentage of coverage, the premium amount for this insurance coverage, if single premium or paid along with the monthly payment, and when the insurance should stop. The MIP premium may be financed all or in part. If not, then you must assign a number to the plans you elect to offer. This includes FHA and VA loans. The program requires a number to be assigned to distinguish one company from another and one plan from another. MIP Company Code 1 through 49 for Private Mortgage Insurance. MIP Company Code 50 through 59 for FHA loan. MIP Company Code 60 through 69 for VA loan. Attaching the MIP Plan to a Product When the companies and plans are set up, the information will only be used by the Products Offered program. If more than one company is used per product, at the time of data entry, the operator will have to select the appropriate company. The MIP plan LTV has no control over the loan amount. This designates which plan to use if the LTV loan amount fits this category. The 100% indicates any loan amount allowed by the Loan Product will be insured down to the next LTV indicated with the plan. The program always begins with 100%. Using MIP in Products Offered, you will save an additional step when entering the loan data in the Master Record. You should verify the information is pulled into the fields. This MIP data is included in the Loan Information section of the Master Record. The operator will need to indicate to include the MIP in the financed loan amount. Using MIP Plans in the Input of Data Using the four-digit Products Offered type in the Master Record is very key. The program pulls in the rate, term, amount, interest index table, margin tables, MIP plans, etc., on new loans being entered. The loan product type becomes the trigger to get information moved into the Master Record. If any data is entered in a monetary field where the product offered is displayed (term, interest rate, or loan amount), the program will automatically perform new computations. 115

5 When the product type has an affixed MIP plan, then the appropriate fields will be filled in. VA Loans Set up the VA Funding Fee as a single premium in companies 60 through 69. The amount and percentage will be automatically entered into Field 811 Borrower Amount for the amount of the VA Funding Fee. Field 811 is used in the APR calculation. Set Up PMI Agencies and Plans This selection is used to set up companies and plans for private mortgage insurance companies/federal agencies, along with their names and addresses. Federal agencies refers to FHA, VA, or state or city housing authorities. Codes 01 through 49 are reserved for private mortgage insurance companies, Code 50 for FHA, and Code 60 for VA. Codes are entered once and will remain until deleted. Company Name The name of the private mortgage insurance company or federal agency. MIP Company Code The code assigned to the private mortgage insurance company or agency. Use the codes as outlined by Fannie Mae. Reserve the 50s for FHA and the 60s for VA. Fannie Mae Code The mortgage insurance code assigned by Fannie Mae. Freddie Mac Code The mortgage insurance code assigned by Freddie Mac. Option to modify the PMI company or agency information. 116

6 Option to delete any PMI company or agency. However, make sure you do not delete a company that has been assigned to various Products Offered. After the private mortgage insurance company or agency information is entered, press View Plans to display/setup information on the various plans offered. Detailed plan information can then be displayed/modified by clicking on Edit. Options to display the PMI-Agencies and Plans manual and to listen to the recorded audio training session. Click Add New Company to display the screen to input the company name and address information. PMI or Agency Name Name of the private mortgage insurance company or federal agency. Street 1 Street address of the private mortgage insurance company or agency. Street 2 Additional line for the street address of the private mortgage insurance company or agency. 117

7 City, State, ZIP City, state, and ZIP of the private mortgage insurance company or agency. Company Initials A short description of the PMI company used for your reference when assigning to products or loans. FHA must be used for FHA loans. MIP Company Code The code assigned to the private mortgage insurance company or agency. Use the codes as outlined by Fannie Mae. Reserve the 50s for FHA and the 60s for VA. USDA Company Indicate if a USDA company. This box must be checked prior to using any plans attached to the company. Fannie Mae Code Used by Fannie Mae s Desktop Underwriter. Freddie Mac Code Used by Freddie Mac s Loan Prospector. Set Up/View Plans Each mortgage insurance company, including FHA and VA, has plans for the different types of insurance coverage. After the PMI company or agency information is entered, press View Plans to set up, display or add information on the various plans offered. Products Offered will refer to this plan for the computation of the MIP. Set up VA as a company and the plans can be the Funding Fee amount based on differing VA qualifications. 118

8 Option to modify the PMI plan information. Option to delete the specified PMI plan. Returns to the listing of PMI Companies. Click Add New Plan to display the screen to input the MIP plan information. Plan Number The number assigned by the PMI company, or your assigned number for FHA, for the percentage (or factor) of coverage, or your assigned number for VA Funding Fee percentage. 119

9 Plan Name Enter a brief description of the plan. Type of Payment Indicate if the payment type is MIP or VA Funding Fee. Defaults to MIP. Single Premium Percent (VA Funding Fee) The percentage (or factor) to be used to compute the mortgage insurance premium when the coverage is paid in a single, one-payment premium. The amount will be input in Field 811. Renewal Indicate if this plan is a level or declining renewal plan. First Premium The percentage (or factor) for computing the premium for the first premium period. An entry in this field will be used to compute the MIP in Field 902. Finance Premium Indicate if the first premium or single premium is permitted to be financed. Number of Months Indicate the number of months for the first premium. Level Renewals The program allows for three different Level Renewals. The total number of years cannot exceed the maximum term of the loan. Renewal % Years The percentage (or factor) for computing the premium for the renewal period. This is to be used when the percentage for computing the premium renewal will be a fixed amount for a given term but not for the full term of the loan. Field 1003 will store the amount of reserve for MIP setup. The number of years the percentage (or factor) entered in the Level Renewals will be used for computing the premium. 120

10 LTV Percent to Request Cancellation Enter the loan-to-value percentage the borrower can notify/request the collection of PMI to be cancelled. On some loans, indicates the borrower can only request PMI to be cancelled when the mortgage balance actually reaches 80% of the original value. Original value means the lesser of the contract sales price or the appraisal value of the property at the time the loan was closed. LTV Percent to Terminate PMI Enter the loan-to-value percentage for the termination (stop) collection of the PMI constant. This percentage is matched to the LTV, which is the current loan balance divided by the original appraised value or sales price When the plan qualifies to have PMI automatically terminated when midpoint of the loan amortization is reached, the word Midpoint displays on the PMI Plans screen under the Stop Pct header. Midpoint Termination Tax Indicate if this plan qualifies to have the PMI automatically terminated when the midpoint of the loan amortization is reached if the loan is current. The percentage of city and/or state tax charged on the monthly mortgage insurance premium. The program computes and displays the amount on the MIP Plans Detail screen in the 1003 loan application and the Master Record. Increase Loan Amount Over Maximum Loan Amount If the premium is financed, indicate if the loan amount can increase the loan amount over the maximum loan amount allowed according to the down payment required. Increase Loan Amount Over Product Maximum If the premium is financed, indicate if it can increase over the maximum set up in the Product Offered type being used. Compute Origination Fee (801) on Total Loan Amount Indicate if the Origination Fee is computed using the total loan amount instead of the base loan amount. 121

11 Round Loan Amount Down to If the premium is financed, indicate if the dollar figure should be rounded to the nearest whole dollar amount. If so, indicate what the whole dollar figure should be. For example: 1 for pennies to be paid in cash, or 50 for $50 increments. FHA Plans Set up FHA as a company and enter your plans. Assign the plans to FHA according to the type of coverage you are using. Company Initials The initials for the company set up must be filled in with FHA. MIP Company Code The company code must be in the 50s. 122

12 For all FHA mortgages, regardless of their amortization terms, with an original principal obligation less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any FHA mortgage with an original principal obligation greater than 90 percent, the annual MIP will be assessed until the end of the mortgage term or for the first 30 years of the term, whichever occurs first. Why Should Table, MIP Companies, and Plans be Set Up? The benefit of automation becomes apparent when the program grabs the correct interest rate from the interest tables, adds the correct margin spread for the product, then displays the principal and interest payment, all with a few simple keystrokes. Mortgage insurance premiums are part of the APR and have to be included in the calculation. It is much easier, faster, and more accurate to let the program calculate the amount of premium. The key is to take time and properly set up all tables, plans, etc., in advance. The rewards in accuracy, speed, and convenience certainly outweigh the effort. 123