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An Interesting Tale about Private Mortgage Insurance (PMI)

I (Pamela) did not think that I would be writing a blog today.  However my lovely husband Bernard strongly suggested that I share my experience about PMI insurance on this blog.  He is French and lived in Canada for decades before immigrating to the US over a decade ago.  As you can imagine from time to time we have discussions about differences in Canada and the US. 

I purchased my house on August 1, 2001, long before we married on December 18, 2009.  A few weeks before we married I refinanced my loan.  At the time I asked the mortgagor about the PMI insurance that I was paying, since I had been paying on the mortgage over eight years.  I was given erroneous information that I did not realize was inaccurate until a couple of weeks ago.  For now I will give the person the benefit of the doubt since he was young. 

A couple of weeks ago Bernard & I were discussing mortgages in general and my mortgage in particular.  I mentioned the PMI insurance.  He asked me what the terms were.  I stated that all that I knew was that I was required to purchase it because I did not pay 20% down on the value of the property when I entered into the original mortgage loan agreement.  He stated that in Canada mortgagees were required to purchase mortgage life insurance, the type where if the mortgagee dies the mortgage insurance would pay off the mortgage.  Since I did not remember anything like that being mentioned when I got the first loan or when I refinanced I decided to call the mortgagor to ask about PMI insurance and how it worked.  This is where my fun began.

When I called I asked for the escrow department.  I asked the representative a general question about how PMI worked.  She checked my account and stated that I did not need to pay for it anymore.  She stated that I had reached the 20% ratio where I did not need to pay for PMI anymore.  That was the first I heard anything about this.  Notice she did not say when I reached it, just that I had reached it.  This small fact is important to the rest of the story.   I asked her what I needed to do to cancel it.  She told me to write a letter to the escrow department requesting that my PMI be cancelled effective immediately.  She also stated that PMI insurance protects the mortgagor in the case of where the mortgagee defaults on the loan.  There is no benefit to the mortgagee whatsoever.  As you can imagine when I got off the phone I wrote a letter to them that was immediately mailed.

A couple of days later I decided to check and see if I was eligible to have the escrow requirement removed from my loan.  I called the escrow department again to inquire about this.  On the call I was told that I had paid down a 30% ratio.  I then realized that I had been paying PMI premiums in error for quite a while.  I was shocked that I had not received anything from them informing me that I could cancel it.  I decided to write a second letter asking for a refund of the payments I had made in error, reminding them that I had not been contacted.  I included all the text from the link below detailing the PMI Act from the Department of Housing and Urban Development (HUD) website, including the enforcement agencies.

I waited a week to make sure that they had received my letter.  I called them in Friday 4/13 to confirm that they were responding to my second letter requesting a refund..  On that call I was told by the representative that she was confident that her supervisor would contact me by phone on Monday (today) when she completed her research on my account.  This morning I received a call telling me that because of a couple of procedural errors and changes to the value of my home, I should never have had PMI on my account when I refinanced my mortgage in November 2009.  I was really excited to hear that by the end of next week I should have a nice refund of all those monies paid for PMI in error.  Note: Friday the 13th has been one of my favorite days for decades.  It is really one of my favorite days after this LOL

According to the PMI Act there are two processes that the government approves for canceling the PMI insurance.  One is an automatic process from the mortgagor.  According to the mortgagor I should have been contacted automatically but was not because of procedural errors.  The other process is when you contact the mortgagor yourself after reaching the 20% ratio to have it cancelled.  My mortgagor does not provide monthly statements for my loan.  This was not possible because the ratio is calculated from the value of the home.  We will never be able to calculate that amount unless the value of your house does not change the entire time you have paid on the mortgage loan.  The bank will have to provide the information to the customer.

For those of you that have had mortgage loans that require PMI insurance for a while, I strongly suggest that you ask the mortgagor what the procedure is for providing the customer information on when you can cancel the PMI insurance.  If they do not have a procedure in place to automatically notify you of this, find out what your current ratio is and ask them to give an estimated time when they think you might reach that ratio.  If they can provide that to you (they should be able to) then put a note on your calendar to call them again a little before that time to make sure that you do not pay out cash for PMI that you are not legally required to.  It is nice to get a refund of the PMI premiums but to have the extra cash on a monthly basis is better:)

Here is another thing to consider before canceling your PMI insurance. Currently the PMI premiums are tax deductible in the US.  Normally you only receive a portion of the deduction amount as a tax reduction.  If you are in a situation where you do not itemize your deductions then you will get the full benefit of canceling the PMI insurance, that is, you will have all the money in your pocket without affecting your tax bill.  If you do itemize your deductions you will need to see how much your tax liability will increase.  I am not an accountant nor do I have any experience in tax preparation (except my own).  However I do not know of any tax situations where dropping a single deduction will raise a person's tax liability by the amount of the dropped deduction.  For example if you paid $800 last year in PMI taxes and you decide to cancel your PMI insurance I do not believe your tax liability will increase by $800, assuming no other changes in your tax situation occur.  Any tax preparers or accountants can jump in and comment on this.

Anyone reading this blog post is probably aware of recent reports regarding corrupt practices from banks, Wall Street and other kinds of financial institutions.  The current financial situation in the United States was caused in part by unethical and illegal practices of banks and other mortgagors related to issuing questionable mortgage loans.  Because of this very real problem I suggest that you regularly check your financial statements and keep track of what is going on with your money and other products through your financial institutions.  This is especially true regarding credit card fees & interest rate changes.

Please let me know about any interesting stories you might have regarding your mortgage or situations related to other financial institutions.

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