Mortgage Insurance and the Obama Mortgage

April 6, 2009

If you are one of the millions of Fannie Mae/Freddie Mac loan or conventional mortgage holders seeking homeowner relief through an Obama mortgage, there are many questions to answer in the application process. You'll be asked about your payment history over the last 12 months, the value of your home, and whether your loan is a Fannie Mae or Freddie Mac.

But borrowers have questions, too. There are many questions on the minds of those trying to avoid default and foreclosure. If you're trying to refinance under the Obama mortgage (also known as the Home Affordable plan) one thing that might be on your mind is mortgage insurance.

Those who have conventional mortgages are often required to carry mortgage insurance. This protects the lender in case the borrower goes into default or foreclosure. Mortgage insurance is often a way to get into a lower down payment, so there are some advantages for the buyer.

For those who take out FHA home loans, mortgage insurance is provided by the FHA. The borrower does not pay a monthly insurance premium to a private mortgage insurance company as part of the FHA loan. The FHA may charge the borrower an upfront mortgage insurance premium, but these costs are usually lower than comparable private mortgage insurance payments.

When refinancing under the Obama mortgage homeowner relief program, you will be asked to provide information on your current loan, including the terms of any mortgage insurance you carry. Homeowners who currently pay mortgage insurance will be required to carry the same amount for the refinancing loan issued under the Obama mortgage program. Loan holders who don't currently have Private Mortgage Insurance or PMI will not be required to start private mortgage insurance-you may to continue with the same arrangement you currently have. In short, homeowners who have no mortgage insurance at all, none is required to take advantage of Making Home Affordable programs.

If you carry private mortgage insurance and refinance with an Obama mortgage, the combination of your mortgage insurance payments and the new mortgage payment may not result in lower payments; this is especially true if you are currently paying the introductory or teaser rate on a new home loan. But refinancing from a variable rate mortgage or conventional loan will save you money over the lifetime of the loan because there will be no dramatic in payments because of volatility in the housing market. Once you are no longer required to pay mortgage insurance (which depends on how much you put down and how much equity you have accumulated in the property) your payments will decrease.