80-10-10 Bashing

June 13, 2002

PMI Cos. Fret About Popular Loan Type

Inman News Features

Mortgage insurance companies are feeling so threatened by the 80-10-10 mortgage that they put out a tip sheet for reporters that disses the popular new home loan, which offers home buyers a way to borrow with as little as 10 percent down.

Pushed by banks, the 80-10-10 is a way around private mortgage insurance by giving the borrower two loans instead of one. The PMI companies are seeing their market share deteriorate as real estate agents and lenders push the 80-10-10.

In a one-page summary dubbed "The Pitfalls of 80-10-10 Loans," the Mortgage Insurance Companies of America, a trade group that represents the major PMI firms, attack the 80-10-10 on several fronts.

It claims that the loan is not cancelable like PMI. Ordinarily, a borrower can cancel PMI when the value of the home rises or the borrower begins to pay down the mortgage. However, borrowers using the 80-10-10 can reach the same result by refinancing when values rise.

The PMI firms also argue that the second loans on the 80-10-10 loans often comes with a higher rate and that there is ordinarily a shorter term on the loan.

Critics of PMI argue that the cost of mortgage insurance is too high and that historically PMI firms have made it difficult for consumers to remove the monthly insurance payments even when home prices are rising rapidly. In fact, the industry has fought efforts to remove consumer barriers to getting rid of PMI.

Ironically, in the tip sheet on the dangers of 80-10-10, MICA lauds the fact that PMI payments are cancelable.

Copyright: Inman News Service

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