Posted by JT-IN on May 23, 2006 at 20:41:13:
Possibly you will want to re-read the restrictions and limitations that your Lender or Servicer has responded to you about. The one year deals with late payments within the past year… The two years has to do with appreciation only, vs. improvements plus appreciation in a shorter period.
What the gist of things are is this… A buyer invests X% out of pocket, and the lender has the balance of that % at risk. Just because the RE mkt may have risen drastically over a short period of time, (9 months), doesn’t necessarily erase the risk to the lender… What if in the insuing 9 months the value dropped back to where it began… only after they have relieved you of the requirement to pay PMI premiums. Your lack of premiums translates to their lack of coverage in the event of default.
In an upwardly trubulent RE market such as we have seen over the past few years, and now the liquidity seems to have tightened, as well as affordability having dropped due to higher rates. The two (or more) elements will (and is) putting downward pressure on prices, and who is to say what is going to happen.
What the two year requirement is designed to do is to put some space of time that insulates the lender against a short-term spike in the market, which COULD result in coming down about as fast as it went up… Now I am not predicting this, nor do I think that it will happen, but if I had money on the line and the option to either release PMI or restrict that release and require it to continue… why would I release it under current market conditions…? What you are tlaking about is 10 or 20% of the original loan amount, either continuing to be guarenteed to the lender, or not. I think that you can see that they will require this just as long as they can do so legally. I would if I were the Lender at-risk. I beleive that their period in which to restrict you from re-appraisal only to establish your LTV of 80% or less, is two years.
Not that this is what you wanted to hear, but I think that it is what you are facting. Think of this another way… Due to the tremendous availability of mortgage funding and easy qualify, largely driven by lenders being insured against default by PMI companies, is what has assisted the unbelievable demand for housing. This demand has driven prices SKY HIGH… such as a 98K increas in your SFH in just 9 months. So while you are paying some amount per month for PMI, it is peanuts compared to your astronomical appreciation. If you could buy another house today… (or 10 of them for that matter), knowing that you HAD to pay PMI for at least 10 years, not 2 years, but the value of the home(s) was going to appreciate just as your has done in the past 9 months, you wouldn’t squalbble one bit about paying the PMI… I would imagine, anyway. Just a counter point of view from the Lender side, as well as how buyers and owners DO benefit from PMI, even though many folks say it only protects the lender… Well it also drives the market, and that is good for everyone.
Just the way that I view things…