How does PMI affect a Short Sale?

[HopefullyNotScrewed]

I have a $461,000 1stTD on a rental property in Corona. It is not purchase money because we took equity from this house to use as a down payment on our present residence in May 2007. (It used to be our primary residence.)

At that time in May 2007, the loan was at 90% LTV and we are paying PMI. Property values have dropped significantly in Corona and after 120 days on the market and the price at $461,000 we had no takers. The comparables now would suggest a selling price of $400,000ish.

Here is the question: Does having PMI somehow help us not get totally screwed on a short sale and any deficiency judgment that may arise? We are not behind on the mortgage (never have been) and with the FHA loan amount just raised to $500,000, I'm thinking I need to get the house back on the market.

I think I have read that in order for short sale offers to be entertained by the lender, I would need to be a couple of months in arrears? True?

I realize you can not provide legal advice....but any anecdotal information would be very helpful and I can go in the direction that makes sense.

Anyway, thank you in advance!

John

[Moe Bedard]

You are in the mortgage industry and you don't know the answer to this one???

[HopefullyNotScrewed]

I was on the origination side for a while, not in servicing. I have been doing reverse mortgages for about 3 years now.

My recollection is that the PMI would cover the $46,100 (10%) over the 80% threshold. So, would it be correct that any gross difference between sales price + fees - $461,000 loan amount - $46,100 pmi coverage = approximate deficiency?

OK then, here is the haps, PMI will assist you their vulnerability is such that they are insuring a portion of this loan and will want to be in the *** bird seat to minimize their losses. They will do an appraisal to make sure all is on the up and up. Their exposure and their contracts with the lender/servicer will enter into this process and THEY are very proactive in this process.

My suggestion is to contact them they have a loss mit department tooo.....aha, they also have issues in this area and are proactively covering their @ssets with great degrees of intervention with the borrower, collateral and lender/servicer.

So they are essentially on your side in this process as they want to minimize their losses as well.

PMI Loss Mit

800.228.1970 -Lender Line

888.305.2956 -Fax Line to Loss Mit

loss.mitigation@pmigroup.com

Nope the coverage is level and they rate of exposure is from 17 to 25%, depending on the variances at the time of underwriting....OH MY...that hurts.

[HopefullyNotScrewed]

I just reviewed my docs and here is the deal.

The LTV was 85.5% of a $540,000 valuation in May 2007. The PMI coverage is high at 21% because the doc type was SI/VA, although with high FICOs.

When you say that the PMI would want to mitigate their losses, that is actually contrary to what I want to do, I think. That house is draining me to the tune of -$1,645.00/month. I can hold on for another 6 months technically, but I really don't want to. The tenants may want to buy the place, and I am positive they would qualify full docs, no problem.

So, theoretically, if the sales price is $400,000 and current mortgage is $461,000, plus fees, there would be a deficiency of $75,000ish.

I have not called the lender or PMI yet because we're still current and can keep it that way if we have to. I also didn't want to raise any red flags yet if I didn't have to either.

Your suggestions would be appreciated!

Oh this is mitigation of losses in reverse...they will actually support the short sale as they mitigate their losses in the coverage scheme...the old a little bit of something is a whole lot better than nothing....

So they are supporting the Short Sales, I have very good contacts with PMI and a few of the others out there and they are really, really proactive in the short sale process with forcing the lender to take the lowered valuation in the short sale process as it does reduce their losses.

They would rather cover the deficiency versus the whole enchilada.....so PMI is on your side.....so is RMIC, TRIAD, UGI, the jury is still out on MGIC and RADIAN.

[HopefullyNotScrewed]

OK, I can head in that direction possibly.

The lender is PHH mortgages Services in NJ, and the PMI company is General Electric Mortgage Corp.


3 questions remain:

1. Does the mortgage need to be delinquent by X amount of months, or better to keep current?

2. Would you venture any kind of guess on how long all this would take? The tenants lease is up in October, so I would like to have something handled before that.

3. In this type of transaction, considering the mortgage is not purchase money, do you find the lenders taking a satisfaction from the short and issuing a 1099 or going for a deficiency judgment?

Oh - being a MI person I gave you PMI's numbers...I will get you GE's numbers then.

PHH is not a real fun experience...sorry but reality is the best policy...they are mostly FNMA or FHLMC with a mix of portfolio product. Really hard in my day to work with in the backside of "deals" and on the front side of underwriting to their stinking guidelines....some of the most idiotic refusal to purchase out side of Provident....borrower birth date filled in but forgot age kind of stuff on the final 1003....go figure....

So here is GE, they too have significant losses and will to mitigate and work diligently to reduce exposure they are realistic.

GE #800.365.4322 -Homeowner Assistance...there was no loss mit #

[HopefullyNotScrewed]

I would suspect this loan made its way into a FNMA pool. I know it was not Freddie.

So ***, I am inferring that my starting point would be with the MI company and let them steer while I drive?

*** should chime in here, the lender and the MI company in conjunction with your realtor have to drive this train....you get to direct the final negotiations, either yea or nay to the final results to you financially.

They are going to take a hair cut and as such this being an investment property they may want to look to you for some of the "shortage" in the short sale. Not necessarily, but.....

The PMI will help compel the investor and the Lender/Servicer to "take" the deal for everyone's sake.....GE will be very concerned about their exposure and will not want a foreclosure as then they have to pay the full amount of coverage, with a short sale the exposure is limited to a portion of the coverage...

[HopefullyNotScrewed]

I guess I'll talk with the tenants and see if they would want to buy the place. Unfortunately for me, this guy can buy a whole lot more house than this with his income so he might just bail when his lease is up.

No matter what, I gotta be proactive and get some info from GE, the PMI folks. Do you think they'll spend time on the phone with me with some "what if's" questions? I hope so.

Anyway, thank for your input.

They may or may not, they are not the homey kind of folks that RMIC, TRIAD or PMI are. Genworth - GE is a huge corporation with some serious Loss Mit issues, like RFC (Residential Funding Corporation), a real loss leader these days. They were also very aggressive in the MI business and the losses there ought to be real heavy.

My suggestion would be to contact both GE and the Lender/Servicer PHH and speak to the Loss Mit divisions of both companies. All in all PHH is not going to be a thrilling call, have you identified a Realtor yet, that is pretty important in this process, you can not do the sale on a Short Sale without a Realtor...no joke that is a requirement of the Non Arms Length identity of the Sale, so you are forced even if the sale is to your Tenant to utilize a Realtor.....

Please be very cognizant of this, there are some very good reasons for this requirement, none of which I believe are at risk in this transaction, however, the Lender/Servicer and MI Company are very cautious and very suspicious in these sales and want a disinterested 3rd party to be the Selling Agent of Record, they want MLS listing to occur and they want a Market situation to be of record.

So prior to offering to your tenant, you will have to identify an Agent and List the property.....they will not allow anything less. You will also have to provide a financial package to the Lender/Servicer to support the request and perhaps GE....