MLO | Modern Loan Officer | Home Buying & Selling Insights

Mortgage Insurance | What is it? Forbearance! Foreclosures! Cortney Hall from Essent MI

April 08, 2020 Addy Nett Season 1 Episode 4
MLO | Modern Loan Officer | Home Buying & Selling Insights
Mortgage Insurance | What is it? Forbearance! Foreclosures! Cortney Hall from Essent MI
Chapters
MLO | Modern Loan Officer | Home Buying & Selling Insights
Mortgage Insurance | What is it? Forbearance! Foreclosures! Cortney Hall from Essent MI
Apr 08, 2020 Season 1 Episode 4
Addy Nett

Do we still need 20% down payment to buy a house? Mortgage Insurance, what does that even do for us? Home Buyers, Home Sellers, Real Estate Agents, all industry professional. Today we have a LIVE recorded interview with Cortney Hall from Essent Mortgage Insurance. Cortney Hall and Addy Nett break down some digestible basics of Mortgage Insurance, how the current COVID 19 environment has created a Forbearance Market, how Mortgage Insurance plays a roll in potentially saving the Real Estate Market from a complete collapse like 2008!

Show Notes Transcript

Do we still need 20% down payment to buy a house? Mortgage Insurance, what does that even do for us? Home Buyers, Home Sellers, Real Estate Agents, all industry professional. Today we have a LIVE recorded interview with Cortney Hall from Essent Mortgage Insurance. Cortney Hall and Addy Nett break down some digestible basics of Mortgage Insurance, how the current COVID 19 environment has created a Forbearance Market, how Mortgage Insurance plays a roll in potentially saving the Real Estate Market from a complete collapse like 2008!

Addy Nett:   0:00
Do we still need 20% down to buy a house mortgage insurance? But the heck does that even do? Today we have Cortney Hall from Essen Mortgage Insurance. She's gonna break down some of the basics for us on. Also, let us know where this market's headed. I didn't see a forbearances, late payments.  Are we diving into a foreclosure market? My name is Addy Nett this is MLO enjoy the show.

Addy Nett:   0:57
And I think before we dive into a bunch of complicated stuff, you know, let's just go into some basics. As you were saying before we hopped on live here. Um, what is mortgage insurance? I mean people, Homebuyers, home sellers. Even some agents need to know. You give us a little bit of a rundown on what that does and what it does for us,

Cortney Hall:   0:59
for sure. So just a little bit about the basics. Mortgage insurance provides protection toe lenders and mortgage investors against loss in the event a borrower defaults on his or her mortgage. So when the financial institution lends money to a bar work to purchase a home, the borrower has to make an investment equity. I e. your down payment, right? So most people I want to put down as little as possible. 3% 5%. So, depending on the amount of the down payment the lender may require, am I to protect itself against the possibility of the borrower will not repay the loan. So that's where am I comes in. Analysis have consistently shown that the lower the down payment, the less equity correlates with the higher default rate. So most of the time you know the people that put a small down payment in, they're going to be just fine. But every once in a while there will be a default, and that's where am I comes in. So typically, you know, if you're putting less than 20% down, then you're gonna need private mortgage insurance. Or am I?

Addy Nett:   1:58
There's still a lot of people out there who think that you don't need it or like you have to put 20% down to buy home. There's still a ton of people,

Cortney Hall:   2:06
right, so so much misconception there, And it's so funny because you can ask people. And they come with the most random answers, like I would talking, giving a presentation a little while ago and I said, How much do you guys think that you need to have like as a down payment? What's the typical? And this was the room of loan officers, and a young lady raised her hand, and she's like, Well, we were just at a party, a bunch of millennials and we all decided it was 11%. Where do you even come up with? 11%? I thought for the most random thing ever, but people don't know right? So lesson 20 per offense. You need M I Of course, there's the government programs like the F H A in the V A. That they have their own coverage. And then there's the private mortgage insurance companies like Essence. They're licensed by the state Insurance Department. And that's what what we do is provide That am I.

Addy Nett:   2:56
That's a big down a good though.

Cortney Hall:   2:59
Yeah, and, um, basically what? The coverages protection that provided to the lender so it reduces the risk so it reduces the exposure. So, for example, if you put 5% down on alone and we provide 30% coverage as a private mortgage insurance company, then that reduces the lenders exposure to 67% instead of 95%. So we're gonna cover if there's a loss in that, um, on that loan, we're gonna cover that. Anything above that. 67% of that.

Addy Nett:   3:36
So just to make it clear, the insurance is for the bank or the lander that's providing the mortgage is not Yes, I get that question all the time. Is a loan officer so? So if I have mortgage insurance, is that something I can tap into? Um, say I can't make my payment and they're gonna cover it for me. That's not like I've had people ask me that before.

Cortney Hall:   3:57
No, they're not. They're not gonna cover your

Addy Nett:   4:01
There's no leniency. There is no way

Cortney Hall:   4:03
of knowing in the there. So what happened? Basically, in the event of the fall, let's say, um or even for barons, So forbearance is right. You talk to your lender, you have the conversation, and they're gonna let you, um, hold off on making that payment say, for one month, two months, three months, whatever that is. When that loan goes for barons. Technically on the mortgage insurance side, we say it's in default because it it's not current at this time. So, um, if that goes from forebears and then there still aren't able to make their payment like they're a modification is not done. So typically at the end of forebears, if they can work it out, they're going to do a modification. They're gonna capitalize that interest and move it to the back of the loan. Then you know everything works out and everybody's happy. Well, if it doesn't and it goes into the vault and there have to be a foreclosure, that mortgage insurance is going to cover the cost of the foreclosure. And then if there's any right now, we're not in a down market. But who knows? But if let's just say that the note amount that was still owed our Matt loan with $200,000 they were only able to sell the house for $190,000 that mortgage insurance would cover that gap, that $10,000 gap, plus the cost of the foreclosure costs, which are another cost a bit to the lender because they would have to pay for the proceedings.

Addy Nett:   5:32
So with all the four Barron's going on in just do you know, on your end, so mortgage insurance won't be affected until we're actually at a dif. All correct.

Cortney Hall:   5:43
Correct. We start reserving once before barren starts. So if if you go and talk to your lender about four parents, then we set up, you know, we're we're looking at, um we're looking that at that loan, as if it's already in default so that we're prepared, even though you can come back for barons and not ever go to a full default. But, um, that that is correct.

Addy Nett:   6:07
Okay, So the mortgage insurance is essentially going to assist us from having this huge downfall on the lending side in the bank, right?

Cortney Hall:   6:16
Yes. Yes. And, um, you know, I'm not current on what the laws are right now, but before the last downturn, if you had at your house foreclosed on and there was that gap I was talking about, that you only sold it for 1 90 it was worth, you know, and you owed 200. You would be responsible for that amounts that you were underwater. And so the rules change that about time that if it was a primary residence, you're not responsible for that. I'm not certain under certain rules what those currently are. You definitely need to talk to a financial advisor on

Addy Nett:   6:52
that.

Cortney Hall:   6:52
But that could be something else that comes into places you would be responsible for that whether you pay the taxes on that one off, that kind of stuff,

Addy Nett:   7:00
which you

Cortney Hall:   7:01
get very

Addy Nett:   7:03
so just to keep this dumbing down, too, so that anybody that doesn't talk about this all day long understand. So generally, most of the time you are paying a monthly mortgage payment. And if you put less than 20% down for most people, ah, part of that monthly payment is a mortgage insurance premium that you're paying to a company like Courtney's. So I think that it's really important to maybe people that are planning to buy like they've got solid jobs there. Now they're feeling secure. Maybe this is a time to take advantage of a market to talk about some key things that people can do to reduce that premium. So what? Let's just open up a little bit. What are some major factors on a conventional loan that could make a mortgage insurance premium, super high and super low Courtney

Cortney Hall:   7:53
Perfect. So some of the things that can improve your rate on mortgage insurance and this is gonna improve your note. Great. Also, call is gonna be a good credit score, so that's important because everything is risk based these days. So good credit score lower debt to income ratio. So the amount you pay out every month compared to what your income is and then the other is a loan to value is also calculated in there. So if you're only gonna put down 3% then you're gonna need we talked about a little bit earlier. The coverage amount. So at at 3% you're going to need 35% coverage. But if you had but say 10% down, then you're only gonna need 25% coverage of that reduces your amount of am I that you would need so again the premium would go down

Addy Nett:   8:42
well on one thing that I would, and we got to use general terms and everyone scenario, is different. Per credit loan program. We got to say all that compliance stuff, guys, But I'll tell you, one of the bigger things I'm seeing is if you're under a 700 credit score. You get really hit hard on the mortgage insurance rate. And I like to use the analogy of car insurance because if you've kind of maybe had some speeding tickets or a crash, you're gonna have a higher auto insurance coverage than, you know, maybe somebody that has a perfect queen driving record. It works very much the same and mortgage insurance. So if you've got, say, a 7 80 credit at 800 cut its coordinator of that premium unicorn credit that only Gramajo has, you're gonna have a much lower premium because it's like to your point, Courtney, it's risk based, you know,

Cortney Hall:   9:35
right? It is your face. There's other factors that go into that also, you know, and not everybody looks at all the same factors. I can't speak for every and my company, but the those air the main that you condone, definitely change on your own are having better credit. So work on making those statements on time. Second of all, the Death and Emery Show being in line, so you know, not have a bunch of credit card debt and different things like that. Bagel high our payments to your point there when you're going to stop, because that's also gonna lie you to qualify for more mortgage, right? And then if you can put a little bit more down, Great. If not, you know, like I said anything 97%. I want the value we will go up to. So, um, but the same with your note way, as you know, Addison as

Addy Nett:   10:25
a

Cortney Hall:   10:25
loan officer, those things, all effects that also

Addy Nett:   10:29
So if

Cortney Hall:   10:29
you can improve on those, it's gonna help you all the way around.

Addy Nett:   10:33
So one thing that and maybe you could debunk me or not. But one thing that I used to see was kind of tier level on the down payment improvements. So, like, 3% down being the lowest conforming down payment. If you're a first time home buyer, then it jumps to 5% and then usually didn't see much. Huge improvement from 10% till 10%. But now I'm kind of seeing a little more dynamic pricing. Is that something that you could speak to over the last couple of years? Maybe Like, is it Did I just make up that term dynamic pricing with Am I?

Cortney Hall:   11:09
No, I like I like dynamic.

Addy Nett:   11:11
It sounds

Cortney Hall:   11:12
cooler than risk.

Addy Nett:   11:13
Uh,

Cortney Hall:   11:15
so it's

Addy Nett:   11:16
face rising. Nearly

Cortney Hall:   11:18
all the M eyes have some sort of risk pricing that they're using. Um, so, yes, we're looking at all of those things that I just talked about. Plus, you know how much reserves do you have? So how much savings do you

Addy Nett:   11:33
have? How

Cortney Hall:   11:34
long have you been on this job? So you know, the more we get into the restates, the more factors that we can look at and see What is the risk of this particular borrower? Because, you know, there may be a borrower that at, you know, a 40% debt to income ratio. However, they've been at their job for 10 years, and their income is $12,000 a month, so they have a lot more residual income after their payments

Addy Nett:   12:04
to someone

Cortney Hall:   12:04
that's got a 40% d p. I, with a $4000 month's income,

Addy Nett:   12:09
right,

Cortney Hall:   12:09
makes a huge difference in what they have the capacity.

Addy Nett:   12:12
Well, in a lot of that makes sense. You know, Blown officers, I'm pretty sure real estate agents probably grasp all that, but to the Homebuyer, the d t I think might be a little bit confusing. So just tow. Summarize it up like debt to income ratio, eyes calculated from your gross monthly income over your liabilities, which are all those monthly payments that come up on a pulled credit report. So not your like phone bill or your PG, but those hard pole monthly payments, and that's where they're getting that ratio. So the lower that is what Courtney's explaining this is that will factor into the dynamic pricing, as I'm calling it toward your monthly premium. So if you're super extended, you're likely going to be a little bit of a higher premium, which increases your monthly mortgage and your mortgage payment. 11 right one thing, and I'd like your take on this. I've always been more cause, like I used the general thumb that, like $10,000 whether it's down payment or change in sales price will typically swing the mortgage payment about $50. Very estimate. Once again, compliance here. Just general rule of thumb. I use personally when looking at homes, Um, but to me, you know, if I'm in a great position with mortgage insurance, I have good credit. I have. I'm not over extended. I'd rather have $10,000 in the bank, especially right now, when there's a lot of uncertainty and maybe carry a smaller premium, that could be 60 to $90 a month for some people.

Cortney Hall:   13:49
Sure, Yeah, that's a huge thing to consider. When, um, I would say when you're out shopping and you're talking to your loan officer

Addy Nett:   13:56
for

Cortney Hall:   13:57
sure, talk to them not only about, um, you know, if you put less down than what does the M I look like? But also, what are the options? Because we don't do just monthly premiums. You conduce do an up front what we call a single premium. So at closing, you would either hey for that or finance. Or you could use seller credit to cover that, and then that monthly amount is not in your loan. It all you paid for up front at a one time fee, and so that gives you again more capacity, toe borrow or just reduce your mortgage payment. The monthly amount because you're not seeing that payment in there that you're not paying every single month,

Addy Nett:   14:38
right? Exactly. Um, I love that input. I just That's great. Kind of like transitioning toward a close here a little bit. I would like to ask. So with what's going on in four, Barents is taking place on mortgages and, you know, we're probably going to see defaults. Uhm, how is that going? How in your opinion is that going to affect mortgage insurance premiums for people buying in the future? Does that mean it's gonna be like, really hard for anyone that doesn't have that unicorn credit like Grandma Jo to get a decent premium?

Cortney Hall:   15:16
That cargo? I love her, No.

Addy Nett:   15:20
But I

Cortney Hall:   15:21
will say that there has been some adjustments in the market based on what's happening, so you will see some increases in price from the M I Cos far that goes because again it's space and we're in a more Ricky environment

Addy Nett:   15:36
right now, right?

Cortney Hall:   15:38
It's challenge at, but we have seen some price increases, and I think that you're gonna see that across the board. It doesn't mean that it's going to go with eight. We will, I'm sure have to pay out on some policies. That's just gonna happen. Um, but you know, we will still be here were very well capitalized and that makes a huge difference that you're prepared. And the thing is compared to, let's say, the last downturn. Those were some scary loom products

Addy Nett:   16:12
that

Cortney Hall:   16:12
necessarily have all the attributes that we have now. And so you have much more qualified borrow, worry that are in our portfolios. Now that you know, it's not likely that they're just gonna walk away just might have some challenges and we might have to work through some things with them. But no, you will definitely happy have the ability to get mortgage insurance after we're done with this pandemic. Um, move forward.

Addy Nett:   16:41
That's great to know. And I think one common question that I get a lot of the one officer that I forgot to bring up is like does mortgage insurance stay on for the 30 years of my alone, like common question?

Cortney Hall:   16:56
Um, so very common question. Get it all the time,

Addy Nett:   16:59
Especially with all

Cortney Hall:   17:00
the research going

Addy Nett:   17:01
on.

Cortney Hall:   17:02
You can request mortgage insurance to come off at 80 per cent loan to value. It is required to come off at 78% loan to value. So, um,

Addy Nett:   17:12
eyes

Cortney Hall:   17:13
definitely a great question. Yeah, At 80 you have Thio Yes. Put it in writing. Requested off to your servicer. It's gonna come off at 78. So

Addy Nett:   17:22
So what? They call you Army Light

Cortney Hall:   17:24
all

Addy Nett:   17:26
they're

Cortney Hall:   17:26
gonna call the service. So whoever you make your mortgage loan payments you that you're gonna read out.

Addy Nett:   17:31
I think that's really good. Really good to know, guys. And there's actually I mean, there's people who might be in a position right now. Toe have that mortgage insurance completely removed, and they don't even know it. They just got a call. So check your your mortgage balance. Um, and you're out TV on that. If there's anything that we can do to help you, Alex, I just let us know. Shoot us A d m r A texture when I, um But, Courtney, I want to thank you for your time today, and I think this is one of those subjects that are often overlooked and not talked about in their questions that we get all the time. So I love that we went through some of the basics, but we still talked about current and what's going on in the market and how this might affect people now and in the future. of buying their homes,

Cortney Hall:   18:13
for sure. And if anybody has any questions, I'm always happy to help an answer. I was a loan officer for almost 20 years before I started doing am I So I am happy to help with anything you guys have questions about.

Addy Nett:   18:26
Absolutely. Love it. Thanks so much. Cortney. We really appreciate your time today and have a good rest your afternoon.

Cortney Hall:   18:34
thank you.