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Jewish World Review May 3, 2001 / 9 Iyar, 5761

Mary Beth McLaughlin

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Consumer Reports

Getting rid of private mortgage insurance -- It's been almost two years since a federal law went into effect requiring lenders to notify homeowners when they're eligible to stop paying private mortgage insurance, yet many are still making payments of about $100 a month.

The reasons are forgetfulness on the part of homeowners and confusion between the federal law and similar requirements recommended by two companies that buy the majority of home loans on the secondary market.

"If they get enough equity in their home, they can get rid of it (mortgage insurance)," said Bob Porter, of the appraisal firm Porter & Associates in Toledo, Ohio. "The interesting thing is, a lot of people aren't aware they can get it eliminated and they pay on these things way past the 20 percent level."

Private mortgage insurance, which the home buyer pays for, typically is required when the buyer's down payment is less than 20 percent of a home's purchase price. The insurance, which is to protect the lender in case the owner defaults, varies in cost based on the price of the house.

Once the buyer has made enough payments to lower the principal to less than 80 percent of the home's value or once the house's value appreciates enough to give the owner more than 20 percent equity, the insurance can be discontinued.

A 1999 federal law permits borrowers who bought a house on or after July 29, 1999, and who have a good payment history to seek from the lender an appraisal or market analysis that will show the 20 percent equity threshold was exceeded. Appraisals cost about $255; the market analysis is less.

Bob Sniegowski, a real estate agent with the Danberry Co., Realtors, in Toledo, estimates his company does 10 of these market studies a month. A few months ago it did none.

"It's nothing more than me going on a visit to someone's home, seeing what the updates are over the period of time, and going in and comparing that home to the existing homes on the market," he said.

Vicki Vidal, director of the Mortgage Bankers Association in Washington, said some homeowners are confused because the law provides for such a study if the borrower has made enough payments. However, Freddie Mac and Fannie Mae, two large buyers of home loans, permit a borrower to request cancellation of the private mortgage insurance if the value of a house has risen enough to give the owner a 20 percent equity, providing the owner has been current on payments and has lived in the house for at least five years.

If a lender gives you a hard time, be persistent. Alternately, if your mortgage rate is high, consider refinancing to get rid of the insurance and to get a lower interest rate.

Mary Beth McLaughlin writes for the Toledo Blade. Comment by clicking here.


© 2001, SHNS