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1.4.10 Private Mortgage Insurance Companies

When the borrower’s down payment is less than twenty percent of the purchase price, private mortgage insurance is generally required. The cost of this insurance is added to the borrower’s monthly payment and held in escrow by the servicer. If the borrower defaults, the mortgage insurer will pay the loan holder some of the monies not recouped in the foreclosure process. Mortgage insurers often have some involvement in the underwriting process, which may entail reviewing anywhere from a small sample to all of a lender’s loan applications.366 The Homeowner’s Protection Act of 1998 requires that mortgage insurance be terminated upon written request once the equity in the home equals twenty percent, or in any event once the equity reaches twenty-two percent.367 In many cases, mortgage insurers have an interest in preventing foreclosure, and they can be an ally to the borrower in negotiating a workout or settling claims. On the other hand, after foreclosure, they may be subrogated to the loan holder’s right to collect any unpaid deficiency.