Homeowners in trouble may find help from an unlikely source: their company for private mortgage insurance.
Typically, homeowners turn to nonprofit counseling services or even paid "mortgage fixers" (not a good idea) to help them renegotiate better, more-affordable terms on their mortgage. But the credit crunch and the large numbers of folks in need of financial help have caused those avenues to clog up.
Homeowners who've tried unsuccessfully to get help may have one more opportunity to get back on their feet by turning to their private mortgage insurer. Private mortgage insurance -- not to be confused with homeowners insurance -- is required of anyone who buys a home with less than a 20% down payment. These policies protect lenders in the event of a default, covering anywhere between 12% and 35% of their losses on the property, says Keith Gumbinger, the vice president at mortgage information firm HSH Associates.
With more homeowners facing the threat of losing their homes to foreclosure -- and more defaulting clients to cover -- mortgage insurance companies are stepping in to help them stay put. "As a mortgage insurance company, we stand in the borrower's shoes," says Michael Zimmerman, the senior vice president of investor relations at MGIC Investment, a mortgage insurer. "If the borrower loses the home to foreclosure, we have to pay."
PMI Group of Walnut Creek, Calif., for example, now offers no-interest loans to help some borrowers catch up on defaulted mortgage payments. Genworth Financial offers a job-loss-protection feature in its policies that pays up to $2,000 a month toward the mortgage payment of a homeowner for six months after losing a job. And if a homeowner qualifies for a loan modification under the government's Making Home Affordable program but can't get his or her loan servicer to help, Genworth may step in to process the paperwork and streamline it to the servicer for approval.
Are you eligible?
Granted, getting help from your private mortgage insurer -- the name of the company should be listed in your mortgage documents -- requires that you meet a rigorous set of requirements.For example, to qualify for PMI Group's Saving Homeownership and Repayment Program, which covers homeowners’ delinquent payments with interest-free loans, borrowers must show that temporary financial setbacks caused their delinquencies and that they have good prospects of repaying their loans. They also must be able to continue making their payments, says Joel Luebkeman, a company spokesman.
Genworth's job-loss protection program is available only to those who have closed on their loan within the past three years. So anyone who bought a home before June 2006 isn't eligible. Currently, about 10% of the company's loans are taking advantage of that program, according to Chris Antonello, a spokesman. However, as unemployment and the costs of running such programs climb higher, further restrictions and requirements may be imposed on these programs, says Rick Gillespie, a spokesman for mortgage insurer Radian, which has offered a similar program in the past.
Homeowners who have Genworth's private mortgage insurance may find it easier to get help for a loan modification or refinancing under the government's Making Home Affordable program. Genworth is reaching out to homeowners who may qualify for the program, offering to help them complete the necessary paperwork and send it to the servicer for approval.
And when it comes to Home Affordable refinancing for loans that have private mortgage insurance, the cooperation of the industry is key.
In the past, a new mortgage insurance policy needed to be obtained for the loan at refinancing, says Frank Ruzicka, a mortgage banker with Cornerstone Mortgage in St. Louis. But these days, getting that insurance is much more difficult, if not impossible, especially on loans that are more than 90% of the home's value. In fact, many homeowners who are "underwater" on their homes don't qualify for private mortgage insurance, even though they may qualify for a refinancing under the government's program.
In such cases, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has encouraged mortgage insurance companies to allow the transfer of a policy to the new loan. "Mortgage insurance companies are attempting to cooperate on this as best they can," Ruzicka says.