Updates given about MIPs

Note: I received lots of feedback on my July 11 column, which answered this question from Damon B. about mortgage insurance premiums and related issues: "Could you please tell me what the ramifications are if you default but you carry MIP on your home mortgage?"

With help from local mortgage company executives, I advised this reader that mortgage insurance premium was designed to protect lenders, not necessarily borrowers or homeowners who default on a mortgage loan.

I knew it was a complex and evolving subject. But, judging from the responses I received, there have been more changes than I realized.

To give readers updated information, I want to share some especially relevant comments I received.

First, representatives of a national private mortgage insurance company responded to my general comment that MIP protects lenders, not borrowers. Terry Souers, a mortgage insurance company executive, wrote:

"Sue, I read a piece you wrote on private mortgage insurance. I wanted to let you know that private mortgage insurance not only protects lenders in the case of borrower defaults and allows them to write more quality mortgages, but it also has many consumer benefits, such as homeowner assistance programs should a borrower default, job loss protection, free home buyer education courses and tax deductibility."

I'd note here that MIP may be tax-deductible, but only in some cases. Current law allowing deductibility expires at the end of 2010.

Souers said, "Today's private mortgage insurance no longer resembles the product once criticized as helping lenders only. It's now a safe, secure and low down payment alternative that provides the payment stability borrowers want, as well as consumer benefits unavailable elsewhere. Its new features, based on extensive consumer research, are especially attractive in today's volatile economy."

He said that many insurers offer homeowner assistance programs to help insured buyers in financial trouble avoid foreclosure, with his company completing more than 15,000 successful mortgage workouts in the last 12 months alone and keeping more than more than $2 billion in mortgages from going into foreclosure.

According to Souers, the company also provides job loss protection coverage that pays up to $2,000 a month for up to six months to cover the mortgage payment for insured borrowers who become unemployed involuntarily.

"With unemployment continuing to rise, it's a benefit that can help prevent mortgage defaults and protect homeowners from foreclosure. Like our homeowner assistance, it comes at no extra cost to borrowers who take advantage of our products to buy a home sooner," he said.

I also heard from Joe Fazio, a longtime local mortgage lending executive who provided the following updates:

"Here are the current (Federal Housing Authority) guidelines on purchases, which may be amended on Oct. 1. FHA has a flat rate for all borrowers of 1.75 percent of the loan amount, not the previous 1.5 percent (as mentioned in the July 11 column). The annual premium is .55 percent of the outstanding balance of the loan, divided into 12 monthly payments and added to whatever you owe in principal and interest.

"If you put 5 percent or more down, (most put the minimum of 3.5 percent) your annual premium will be reduced to .50 percent.

"Also, borrowers are now required to pay an up-front MIP (a change from the rules reported in the July 11 column) and monthly MIP on all condominiums and 203(k) loans."

Finally, FHA offers a comprehensive loss mitigation program to help homeowners avoid foreclosure. FHA works with both the borrower and the lender to find creative solutions when homeowners get behind in their mortgage.

Thanks for bringing me and readers up to date. With things changing so rapidly in this industry, I'd suggest asking such questions when buying a home and purchasing mortgage insurance. And it's always wise to consult a real estate attorney or a CPA for more detailed questions in those areas.

For more information and for a list of affiliated experts in this area, visit lasvegasrealtor.com and click on the links page.

Sue Naumann is the president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for nearly 30 years. GLVAR has nearly 14,000 members. To ask her a question, e-mail her at ask@glvar.org. For more information, visit lasvegasrealtor.com.