Loan Officer Training - 11/20/2024 - Mortgage Insurance Fundamentals for Loan Officers

In this episode of Loan Officer Training, we explore the essentials of Mortgage Insurance (MI) and its critical role in the lending process. From understanding the different types of MI—private, FHA, VA, and USDA—to learning how to calculate premiums and explain their impact on loan affordability, we’ll cover it all.

Gain insights into how MI protects lenders, helps borrowers with lower down payments, and affects loan structures. Whether you're looking to refresh your knowledge or master the intricacies of mortgage insurance, this episode is your guide to confidently navigating MI conversations with clients and closing more deals. Don’t miss it!


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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip Mortgages and thousands more!

Our Mortgage Loan Originators are trained to be loan consultants to guide borrowers throughout the entire loan process.

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Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Transcript

Restream recording Nov 20, 2024 • 05:02:29 PM: 0:13

So let's get right into it here. So what exactly is private mortgage insurance? Private mortgage insurance is a financial guarantee that reduces loss to the lender or investor. So, uh, In the event borrowers do not repay their mortgage, mortgage insurance is required at LTVs above 80%. So 80. 01 percent or above LTV, you need mortgage insurance. Like I was already mentioning, the benefits is of MI is it allows high LTV loans, right? It's not a guarantee, right? The loans go up to 80 percent or less. There's additional guarantees. And in this case, mortgage insurance. So another benefit. Uh, to MI is the ability to cancel when no longer required, right? As compared to mortgage insurance on an FHA loan, PMI, you can cancel it, which we'll get into in a bit. Um, MI, PMI also gives increased buying power for the buyers because like I mentioned, how also those buyers going to buy a home if they don't have the 20 percent down. The only way that they can do it is because of mortgage insurance, the extra security and assurances that mortgage insurance offers, um, to the deal, because it reduces the lender's exposure to losses. So for example, when you're getting your quotes, right, you may see that for, uh, uh, 97%, uh, LTV quote, uh, is going to state you need 35%. Mortgage insurance coverage, right? For 35 percent of the loss. Um, 95 percent you'll see that it says 30%. And, um, at 90 percent LTV, for example, you'll see that it says 25 percent coverage. So that's how the amount of the MI would be lower according to the loan amount. But please also know that mortgage insurance, or should I say private mortgage insurance is a loan to value as well as credit score based. You already saw that the lower the LTV, the percentage of coverage has to go down. Um, the lower the credit score, the higher the amount. I mean, I've had scenarios where with a six 40 or six 50 credit score on an agency loan. Borrowers paying five, 600 a month of MI. That would definitely be a scenario where you would probably would be looking at an FHA loan since the mortgage insurance on the FHA loan is based on the loan amount times the factor, right, 0. 55%. divided by 12 as opposed to mortgage insurance, which is based on a factor, but it's also based that factor is going to be based on the credit score of the borrower, uh, as well as the LT. Now, um, different ways to order mortgage insurance. I guess this is more of a procedural item for the loan officers, but please be aware, um, in some cases, the investor underwriter orders the MI when they handle everything. And in other cases, the MLO has to order the MI, uh, individually from whatever MI carrier that you are choosing. Please note that when the loan is submitted to MI for review, it's like there's an, there's an MI underwriter. They're going to review the file just like the underwriter That the investor reviews the file and they're gonna underwrite it. And in some cases we do have situations where the, um, underwrite by the MI underwriter conflicts with the underwrite of the, um, investor underwriter, you know, like. Which meaning they could have actually more conditions, give you additional conditions that you didn't expect, and now you got to go back and provide additional documentation. So please do note that MI does need to be approved and there is an underwriting process and they are going. Hold up everybody. Let's get this going. All right. Uh, thank you so much folks. Uh, we had a little technical difficulty there. Um, but we're back. Uh, had a little loss of power here. Uh, so hopefully didn't lose everybody. Let's go back into the presentation here a minute. All right. So we were going over mortgage insurance and, uh, we were going over, uh, basically. The benefits of mortgage insurance. So we already went over the benefits. Reduces lenders exposure. And then we were talking about how you order mortgage insurance. Actually, that's where we were at when I was cut off with my power surge here. Um, so you're either going to order the mortgage insurance directly from the mortgage insurance company or the underwriter, uh, will order it for you. So you really have to make that determination on where you're submitting the loan and make sure who's responsible. For the mortgage insurance. Now let's get into the types of mortgage insurance. And again, we're talking about private mortgage insurance here. Um, the most common option of mortgage insurance is borrower paid mortgage insurance, where there is a monthly premium, right? It's paid monthly. That's it's set on a, on a, on a factor annual amount. Divided by 12. Uh, now the benefit of having the monthly premium is that it may be cancelled in its entirety when it's not needed. You won't be, you know, billed, you won't have to make the payment anymore. And there is no upfront premium, right? It's basically monthly payment. Uh, the second option is the single premium, uh, Morgan Insurance. It's a lump sum payment. paid one time. Now that can either be paid by the buyer, the borrower, by the seller, by the builder. Um, now the benefit of the single premium is that there is not a monthly payment. So there's a one time, uh, cost. Which is the expense. Now, again, it can be paid, um, as a closing cost, uh, or it can be financed into the loan amount. Um, so, and, and again, it may be, um, a portion of it may be canceled. But the big benefit of the single premium is that there is not a monthly payment. Charged to the bar. So there it doesn't appear. It's not part of the P. I. T. I. Right. So it doesn't appear in the D. T. I. So if, for example, you do have that 12 or 13, 000 annual premium or whatever it could be, you know, six or 700 a month, right? But maybe if they get it as a single premium policy. Okay. It's going to be a little bit higher amount. It could be 000, but it's a one time fee, right? So that four or five or 600 a month that is going against the, um, the borrower's income will no longer be there. So it will not affect the DTI. So if for example, that four or five, 600 a month in mortgage insurance was taking you over the top, As to what the, you know, as to the maximum allowable DTI now, um, if they can come up with the money, then they wouldn't have that problem. And there's many ways to get creative there. If you have a set of contribution to the closing or the bar is simply has the money because. The 10, 000 or 12, 000 in additional down payment, for example, to try to bring down the payment isn't going to affect the payment as much because that could be 5, 6, 7 a month per thousand isn't going to affect the payment as much as if you pay that mortgage insurance up front. One time payment and then you eliminate that high mortgage insurance payment. And again, specifically, we're talking about here for scenarios of borrowers that have lower credit scores where the mortgage insurance is really high. We're not really talking about an M. I. payment of 40, 50 a month. Right. So that's this, but this is a solution and it has worked out in many loans where the, the, uh, single premium, uh, has been paid. And by the way, good news is we even have a lender paid. Am I single premium, right? Uh, where the, the, um, the premium is paid by the lender or third party. However, the cost for the, uh, lender paid M I is, is not free. That that cost is going to be paid for by higher interest rates. And it could be some additional fees that they add, but definitely you're going to have a higher interest rate when you have lender paid MI. Now the last topic that I wanted to cover here was MI cancellation, right? The cancellation of PMI, because there seems to be a lot of mystery In the market as to how you can cancel the MI, this is a very important takeaway from this training. Um, the first, uh, method of, for MI cancellation is automatic termination of the MI at 78%. of the original value of the home, not the current value from an appraisal, but 78 percent of the original value. We have automatic termination. The second way it can be canceled is that the borrower requested it at 80 percent of the original value, right? Notice we're talking about original value. So whenever we're talking about original value, Um, you know, there's less restrictions, right? Because the original value when you bought it and for you to get the 80%, you either pay down a lot on the loan, right up front or, um, a lot of time has passed and, um, now you're at 80 percent LTV based on the original value. However, many people don't want to wait until they get the 78%. For an automatic termination or 80 percent of the original value, they want to try to cancel that MI as soon as possible. So, in order to use the current value, right, you are allowed to request cancellation of PMI using the current value, but a couple conditions. Uh, the loan has to be seasoned for at least two years and the borrowers have to have an acceptable payment history. But a couple additional, uh, restrictions here, uh, if less than five years have elapsed since the origination of the loan, uh, then you have to be at 75 percent LTV or lower. If more than five years have elapsed. Since the origination of the loan, then you only have to be at 80 percent or lower. But keep in mind, this is using a current appraised value and not the original value. So let me recap the key takeaways from this training before we end the session today. Remember that PMI allows borrowers to finance at higher than 80 percent loan to value, which gives greater liquidity. Um, to the market, uh, we do have, um, single premium policies, which, uh, can be paid in a lump sum so that you eliminate the monthly mortgage insurance expense. So that if your borrower didn't qualify because of that extra 300 or 400, whatever is the MI paying it as a lump sum, you can get rid of the MI. We also have lender paid single premium MI as another option. And then remember, on the cancellations, we have automatic termination at 78, borrower requested at 80%, both of the original value. And if you want to use the current value, then less than five years, 75 percent LTV, more than five years, 80 percent LTV. So are there any questions regarding mortgage insurance? I do not see any questions here. I'll give it a minute. So we are good to go and I will see you for tomorrow's training. Thank you and have a great day.