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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