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Question:
MAY 15, 2012

Why LPMI is a Bad Deal and How to Avoid it

Can I find LPMI in a mortgage refinance?

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Bill's Answer: Bills.com Resident Expert

Lender Private Mortgage Insurance (LPMI), is as its name suggests, mortgage insurance that protects the lender in case of a borrower's default. LPMI is a misnomer because the borrower pays for the insurance in the form of a slightly higher interest rate. Unlike PMI that the borrower pays for directly, with LPMI there is no automatic cancellation of the insurance charge once the borrower equals 22% equity. To eliminate LPMI, the borrower must refinance the loan.

LPMI has one potential advantage over PMI. As I write these words in late 2010, PMI is still tax deductible for homeowners earning less than $100,000. If you earn more than $100,000, then LPMI might be a smarter option. Congress has looked warily at PMI as a tax deduction for many years, and may eliminate it in the future. If Congress removes PMI as a deduction, LPMI will become more attractive because its cost is rolled into the interest rate. Note, however, that some in Congress want to eliminate the mortgage interest deduction altogether.

You are familiar with the old phrase, “There is no such thing as a free lunch.” LPMI is not a free lunch — homeowners pay for LPMI in higher interest. It is also a bad deal if you plan to own your home long enough to exceed 22% of equity. Mortgage insurance is a bad deal anyway for homeowners because if they default the beneficiary is the lender. Upon default, the insurance provider often pursues the homeowner for the loss, which makes mortgage insurance an especially bad deal for homeowners.

Your LPMI Question

Lenders standardly require homeowners with less than 20% equity to buy PMI.

You are in a tough position. If you are applying for HARP, then it seems safe for me to assume that you either are underwater on your home or have very little equity. A standard refinance is not an option.

While my reading of the HARP guidelines do not show any Fannie Mae or Freddie Mac requirements that preclude a lender refinancing a loan with LPMI under HARP, it appears that lenders are making this decision on their own. Clearly, this limits the number of people who can take advantage of HARP, contrary to the announced goals of the program. (Editor's Note: President Obama announced on October 24th, 2011 some significant changes to HARP. While the final guidelines are yet to be released, it appears that the LPMI issue will be addressed, allowing borrowers who have been unable to participate in HARP to now do so. Check back at Bills.com, to stay informed about the new HARP rollout.)

It doesn't seem to me that you will get relief unless the government holds lenders' feet to the fire or revises the HARP program.

Take advantage of the information, tools, and resources in the Bills.com Refinance section to help you navigate these options. Once you have completed your research and are ready to find a great loan, use the Bills.com Savings Center to start your search.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (23)


Phillip R.
Sandy, UT  |  April 23, 2012
Has anyone had any luck getting a Bank of America HARP 2.0 refinance loan with an existing Bank of America loan that has Lender Paid Mortgage Insurance? I called BofA today inquiring about my HARP eligibility and was immediately denied due to LPMI. I called Chase for a second opinion, and they said they would do it, but are only currently servicing existing Chase loans.
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Allison B.
Ringwood, NJ  |  April 26, 2012
I was able to refi my LPMI BOA mortgage by going to CMG Mortgage. I just closed Saturday. Quicken would also do it but not with my LTV. CMG gave me a better rate anyways. Don't believe BOA if they tell you to call back later. They're just stringing you along to make their dollar. Good luck!
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Kenny F.
Lithonia, GA  |  May 02, 2012
Congratulations, Allison. I too have a BOA mortgage with LPMI. I'll try CMG. I hope they can help me. I tried with American Finance Resource, but the underwriters wouldn't approve because AFR wasn't an approved customer of Radian. Radian owns my LPMI. Now I have to find a lender who is an active Radian customer. I called Radian, asking for a list of their lenders, but they refuse to give a list. Wow.
Ben Z.
Corona, CA  |  April 23, 2012
I googled LPMI because I am in the process of purchasing a brand new home. I asked my mortgage consultant if there's any way i can avoid PMI like putting 10% down instead of 3.5, he said no because I have an FHA loan. but then he said with 5% down we can do the conventional loan with the LPMI program. he warned me that i'll have a higher interest rate but the monthly payment will be lower. we still haven't talked about the details of the program, but after reading this article am i better off keeping the FHA loan and forget about the LPMI?
Bills.com
April 24, 2012
Consider these factors:
  1. Closing costs in both loans, including the upfront MIP on the FHA loan
  2. Interest rate differential
  3. Monthly premium for the FHA mortgage insurance, which does not last for the life of the loan
  4. Time horizon that you want to stay in the property.
Ask your lender to crunch the numbers and determine what the breakeven point is for the two loans. Then, based on your personal preferences you can make your decision. If you want to avoid PMI then you will need to make a 20% downpayment.
Quick tip:Get a Bills.com Quick Quote and find great mortgage lenders ready with rate quotes on the best loans for your situation.
Brian M.
Blooming Grove, NY  |  April 17, 2012
I was dealing with a mortgage broker who was going above and beyond trying to help me with my HARP refinance, only to hit a road block because BoA who holds my mortgage will not allow outside brokers to deal with them. I called BoA to inquire about refinancing they told me they could not do anything because I have a 30 year conventional with PMI. So being that BoA is less than helpful I called the mortgage broker who gave me the whole run down on how I have LPMI which is why he can't help me and my only option was to stick with BoA and deal with them directly and see what they could do. So I called BoA back and they stated I did not qualify for HARP because of the LPMI. I was told my only option was to either make a late payment and ask for a modification and lose my credit score of 790 or drop another 100k into the property to get below the 80% of the current market value. Can I get rid of LPMI by paying down the loan amount to below 80% the initial purchase price or initial loan amount borrowed?
Bills.com
April 18, 2012
Check with your lender the terms of the mortgage insurance, and if need be, contact the mortgage insurance directly. For most loans, PMI is automatically terminated when it reaches 78%, based on the original loan schedule and property value. The second alternative is that you can ask for the PMI to be terminated if your LTV, based on your loan balance and newly appraised property, reach 80%. Note, this is not based on the original value of the property.

LPMI does not automatically disqualify you from the HARP program, although it is harder to find a lender. Unless you are in a real hardship, I don't recommend missing payments. You may not qualify for a modification program, and you will lose your HARP eligibility. Keep shopping.
Joe C.
Freehold, NJ  |  March 23, 2012
Spoke to BOA and they won't do anything. Called Quicken loans and they will do it! All of the other banks, Wells, Chase said no also.
Elisheba L.
March 20, 2012
It appears that everyone is having the same issue with the LPMI and the common thread in the conversation is Bank of America. I too have been trying to refinance for over a year and have been denied each time. It is very frustrating as the people who should be benefit from this program continually gets denied.
Eric P.
Rancho Cucamonga, CA  |  March 13, 2012
After fighting with BOA for over a year to try and lower my intrest rate and never getting any cooperation and always being told no because of my PMI or LTV ratio I had given up. Then in Dec. 2011 BOA sold my loan to M&T Bank. I thought this could be a good thing because maybe they will help me more than BOA. Once the HARP 2.0 program came out I called M&T Bank and they immediatly told my NO. My loan was ineligible because I have POOL MORTGAGE INSURANCE on it. Have you ever heard of this? I asked about it and they said that because my loan was sold as a huge batch of loans that a special mortgage insurance rate was negotiated with the insurance company and then the insurance company (RADIAN 1-877-723-4261) made it so any loan with Pool Mortgage Insurance was ineligible for HARP 2.0. So if BOA would have kept my mortgage I may have been eligible for HARP 2.0 but now that they sold it along with thousands of others I assume, it is not not eligible because it has Pool Mortgage Insurance. I CAN'T WIN! And I'm sure I'm not alone out there with this problem. Any suggestions?
Bills.com
March 13, 2012
Unfortunately, mortgage underwriting involves many technicalities, beyond the control of the borrower. I suggest that you speak with Radian, which you may have already done, and ask their representative if you have any other alternatives.
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Misha W.
March 21, 2012
I have the EXACT same facts. BOA loan sold to M&T and I now find out I cannot refi under HARP 2.0 due to the mortgage pool insurance. I had no idea of what this was until my dreams were crushed by M&T. I don't understand the point of these programs if there are tons of small print.
Mike J.
New Providence, NJ  |  March 08, 2012
Hi there, Any further updates to when HARP 2.0 will allow refinancing for LPMI loans? Every banks seems to decline due to LPMI on the loan.
Shelia R.
Charlotte, NC  |  March 01, 2012
I getting the run arounds with BOA. I inquired about the new HARP 2.0 loan and was told, I do not qualify because my loan is MILP (Mortgage Insurance Lender Paid) and I have a Fannie Mae Loan. So I contacted Fannie Mae to get more information pertaining to BOA not cooperating with offering HARP 2.0 loans. Fannie Mae told me I'm eligible. Also, I contacted (MGIC) Mortgage Guaranteed Insurance Company and was told that they're not blocking me from refinancing under the New Harp 2.0 loan program. It's Bank of American and their underwriting guidelines that preventing me to refinance my loan. Fannie and MGIC both has told me I can go to any bank or mortgage company to refinance my loan. I have been on the phone most of the day and discovered that most lender are only servicing their existing internal bank customers.

News Flash*****I Googled BOA and Fannie Mae and Bank of America announced Thursday it will cease making new refinance mortgage sales to Fannie Mae as the mortgage heavyweights tangle over sensitive buyback claims from the financial crisis. Go to B of A Ceases Mortgage Sales to Fannie Mae

Bank of America isn't being honest with its customers who qualify for HARP 2.0. We all know we are qualified for HARP 2.0, but BOA is not interested in participating with Fannie Mae Loans so therefore we are denied.

My solution is to find another bank to accept my loan. Anyone who's going through a HARP 2.0 with another lender and was approved, please post or respond. Thank you!
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Joe C.
Freehold, NJ  |  March 08, 2012
Same situation here. I actually spoke to a mortgage advisor and they told me that yes my BOA loan with LPMI is eligible under HARP 2 but BofA has yet to implement the refinance options. He told me to call back in a few months. I've been calling for over 1 year!!!
Snehal S.
Folsom, CA  |  February 15, 2012
Here is my situation. I have BOA LPMI loan. I tried to refinace with one company just 2 weeks back and everything was going smooth as my house to loan value is 115%. When company was collectin last information about my LPMI from MI company they did not find any records under my name/loan. They ask me to contact bank(BOA) to find out why there is no PMI information when my lender is paying PMI for me. I called bank and they mentioned that my loan is LPMI and my invester(freddit mac) has paid PMI on behalf of me and so you will not find any information about my record for PMI company. Apart from that he mentioned that Freddie mac paid one time payment to PMI company and now i'm paying extra % apr till my loan date to cover that cost. Because my loan is Lender paid PMI i could never ever refinace under HARP2.0. Is that true? I'm so confused...
Bills.com
February 16, 2012
Your lender should have the information regarding the mortgage insurance company that provided the LPMI. If they cannot provide the information contact Freddie Mac at 800-FREDDIE (373-3343). Read the Bills.com article about mortgage insurance and HARP mortgage.

I am not aware of a situation whereby Freddie Mac pays for PMI, and if you receive information confirming such an arrangement, please let our readers know. LPMI is not a reason, by itself, to be disqualified from the HARP mortgage program, although there are technicalities in the underwriting guides that may make the loan ineligible. Your lender should be able to inform you of the exact reasons.
Troy K.
Riverview, FL  |  January 28, 2012
My question is regarding the following: I have applied with 3 different lenders regarding HARP program only for FANNIE MAE to come back saying its ineligible. I meet all qualifications for the HARP program. All 3 lenders approved it, my lender told me, when we closed on the loan in April 08 it was a special loan due to our excellent credit and we only had to put down 5%, we ended up putting down 10%. I assume FANNIE MAE is kicking back saying its ineligible due to not having 20% equity is this correct? This would be considered the LPMI? Next question is HARP 2.0 going to address this for people like me in this situation where it won't matter how much equity you have and will it allow us to use the HARP program? Also these changes take effect March 1st? I know I can't be the only one with this issue considering how bad the housing market has tanked. Any help would be greatly appreciated. Thanks
Bills.com
January 29, 2012
Fannie Mae does not disqualify a loan because there was less than 20% equity in the original purchase. Both PMI and LPMI loans are eligible for refinancing. Also, Fannie Mae does not directly give loans to borrowers. There may be some technical issue in how the loan was underwritten and sold. I suggest that you contact Fannie Mae to see if they can provide additional information or guidance. Homeowners can contact Fannie Mae by phone at 1-800-7FANNIE (1-800-732-6643) (8 a.m. – 8 p.m. ET) or e-mail to resource_center@fanniemae.com.
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