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Adding Fuel to the Fire: Private Mortgage Insurance and Foreclosures

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    If you are currently experiencing the hardship of having your property going into foreclosure, you may very well be familiar with the difficulties of having the mortgage insurance companies go after you in addition to your lender. You are certainly not alone. Mortgage insurance companies sometimes step in to add insult to injury.

       Lenders require individuals to purchase private mortgage insurance (PMI) when their down payment is less than 20 percent of the sale price or appraised value of the property. Individuals are sometimes required to purchase some form of private mortgage insurance (PMI) rather than the government mortgage insurer, the Federal Housing Administration (FHA). While the PMI may appear to be an encouraging method to purchase a home if one is unable to place a 20 percent down payment, there are drawbacks to this approach. These companies are designed to protect the bank, not the borrower. When a homeowner defaults on their loan and their lender takes foreclosure action against them, private mortgage insurance companies have, at times, contributed to this hardship. The insurers are able to escalate this problem by attempting to recover their losses on the defaulted loan. As a result, the borrowers have an even larger target on their backs.

     There is the Homeowners Protection Act, otherwise known as the “PMI Cancellation Act,” which outlines a variety of methods in which homeowners are able to cancel their current private mortgage insurance when the principal balance has reached 20 percent. If the homeowner decides to delay the cancellation and the equity reaches 22 percent, the PMI is automatically cancelled. This act gives at least some security for the homeowner and one has the right to ask the lender to completely cancel the PMI (all of the mortgage payments must be current). You may view these different methods at: at https://www.fdic.gov/regulations/compliance/manual/pdf/v-5.1.pdf.

     An article by the New England Center for Investigative Reporting recently profiled experiences of homeowners in foreclosure who are now under attack by the private mortgage insurance companies. The story of Guillermo Galindo and his family is unfortunately becoming a common narrative of families receiving additional expenses after losing their homes in foreclosures. They hoped to reestablish their lives after their house was foreclosed upon, but the Galindos later received a notice stating that they owed an inexplicable $136,547 on the foreclosed property. Lo and behold, it was an attorney for their mortgage insurance company, PMI Mortgage Insurance Company.

     According to the New England Center for Investigative Reporting, they have found “that more than 200 Massachusetts residents and thousands more across the United States have been pursued by mortgage insurers for losses ranging from tens of thousands of dollars to more than  $200,000 since the foreclosure crisis began about seven years ago.” During the financial crisis, many homeowners ended up owing astronomical amounts of money when they defaulted on their loans. This amount, in fact, would frequently outweigh the amount of equity they had in their property. While the mortgage insurance companies would pay the lenders some of their money back, it was rare that this amount covered the complete disbursement to their former lender. This caused the insurance companies to fight to get money back from homeowners who already may be in a heated foreclosure legal battle with their lender.  

      Taking advantage of individuals when they at their most vulnerable state is not something we take lightly here at Fazzio Law Offices. As National Association of Consumer Advocates Executive Director, Ira Rheingold states, “It’s just knocking people when they are down, particularly when we live in a world where there were so many bad mortgages made. It’s incredibly unfair.” Let us pick you back up and assist you with getting back on track with your property. If you are interested in our services, feel free to give us a call at (201)-529-8024 to schedule a free consultation today.

The New England Center for Investigative Reporting’s Story Featured on The Boston Globe:






Category: Foreclosure Law


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