Removing PMI - logistics

[Susie]

We bought our current house in May with <20% down, and are now seeking to pay down the mortgage to remove PMI.  The proceeds from the sale of our old house are sitting in our checking account, and it is time.  Last week I sent inquiries to our lender (Homepoint Financial) to start both the PMI removal and recast process.  Their form letter in response to my request for a PMI removal quote was less than super helpful.

Basically, as I read it, you can remove PMI in one of several ways:

1.  80% of the original value of the house 

PMI cancellation requests will be granted if the following conditions are met (C&P'ed from letter):

1) a written request to cancel PMI is submitted to Home Point;
2) the account has a good payment history, which means that none of the payments has been
 a) 30 days or more past due in the past 12 months; and
 b) 60 days or more past due in the past 24 months;
3) the payments under the account are current; and
4) Home Point has been provided with evidence that the property value has not declined below its
original value. For this step, an appraisal or a Broker’s Price Opinion (BPO) will need to be ordered.

2.  Automatic termination at 78% LTV - based on the date we would hit 78% LTV according to the original amortization schedule, 1/1/2029.  Doesn't get moved up if you pay extra.  Pass.

3.  75% LTV re: current value
If the account originated:

• between two and five years ago, it may be eligible for PMI cancellation if
(1) the LTV has reached 75% of the property’s current value, and
(2) the LTV is confirmed by a BPO that is ordered, and directly received, by Home Point.
Based on your current principal balance of $XXX the property must appraise at approximately $YYY to reach the required 75% LTV.


• more than five years ago, it may be eligible for PMI cancellation if
(1) the LTV has reached 80% of the property’s current value, and
(2) the LTV is confirmed by a BPO that is ordered, and directly received, by Home Point. Based on your current principal balance of $AAA the property must appraise at approximately $BBB to reach the required 80% LTV.
 
Regardless of when the account originated (even if it was less than two years ago), it may be eligible for PMI cancellation if (1) substantial improvements have been made to the property that have increased its value, (2) the LTV has reached 80% of the property’s current value, and the LTV is confirmed by an appraisal that is ordered, and directly received, by Home Point and that is completed after the relevant improvements have been made.

--

Our account originated in late May 2021, <6 months ago, and the "original value of the house" was our April 2021 appraisal, which was terrible.  I am a little irritated at having to pay to re-appraise the house 6 months later, but it sounds unavoidable.  On the bright side, I am confident that a new appraisal would only get better than the appraised value from April (garbage appraisal discussed at length here).  It's honestly 50/50 whether 80% LTV on original value or 75% LTV on current value would be easier to achieve.  

Unfortunately they don't provide any specifics about who to use for an appraisal or BPO, where to send it, etc.  They are clear it has to come directly from whoever does it.  Has anyone gone through this process with any lender recently, particularly with Homepoint?  They do not deal by phone, and by email they're all about form letters.

[ssmjlm]

Would you be better off refinancing and just putting more down to hit the 80%?

[Susie]

Nov 16, 2021 16:20:02 GMT -5 ssmjlm said:

Would you be better off refinancing and just putting more down to hit the 80%?

I don't think so -- we have 2.75% for 30 years, and I think rates have gone up since then.  Plus paying $500 in fees (a $150 processing fee for the PMI analysis + a $350 processing fee for a recast) is a lot less expensive than closing costs on a refi.

[clairebear]

I'm a real estate broker but 90% of my work is BPOs and appraisals inspections. It's contract work with an appraisal management company (lender contract them to complete appraisals, BPOs and other valuation work) and then they contract the work out to local agents and appraisers. I've done a ton of BPOs for PMI removal. The owner will ask the bank to remove PMI, fill out whatever paperwork is necessary and then the bank orders the BPO. The work order gets assigned to a local agent and then I contact the owner to make an appointment to get interior photos. As far as I know the owner has no say in who completes the BPO. I submit the BPO directly back to the appraisal management company, they send it through quality assurance and then onto the bank. The owner typically doesn't receive a copy unless they request it from the bank. It's proprietary info to the bank so I'm not even allowed to share the final price conclusion to the owner.  The entire process seems to take anywhere between 2-8 weeks depending on your lender. My turn time on the BPO is 3 days, but often the bank then sits on the report for weeks. 

This is lender dependant, but some are very strict that improvements have to be made to the home that accounts for the value increase. They don't like to see the entire increase in value by the market alone. The form I use won't even submit unless I fill out at least one home improvement field. So if you are trying to get rid of PMI based on market increase alone, that maybe tough to do. I've seen some lenders take random things like landscaping, or minimal painting. Even moderate projects like new flooring are acceptable, it doesn't have to be a major kitchen reno. 

Let me know if you have any questions. I typically don't know what lender I'm completing the BPO for since it goes through an appraisal management company so I'm not much help with the specifics concerning your lender. Most banks contract out their BPOs and even appraisals now through a management company. Very few banks have their own appraisers working for them, even on a contract basis. 

Also, I'd be curious what they charge you for the BPO. I only get paid $65-85 for an interior BPO, I know the bank has to be padding it, I'm just curious by how much. 

[Susie]

clairebear , thanks for your insight.  Just to be clear, we aren't trying to get rid of PMI by market value increase.  Homepoint doesn't consider PMI removal requests on that ground until you've been in the loan for 2 years, and we're only at 6 months.  We're looking to do it with a big principal payment.  The BPO is required to confirm that the house hasn't LOST value relative to the original value (set by the appraisal 6 months ago).

The short story:  Asking price was $429,900.  We got an offer accepted for $450k in March.  Unfortunately, there were some issues with the appraisal, and it only came in at $435k.  Home values were rising rapidly in our area, and appraisals hadn't caught up yet.  It didn't help that the appraiser used at least one asking price for a comp as if it was a sale price.  Nothing sold for asking price in our market this spring!

At closing in May, we put down 5% of $435k + an extra $15k to cover the difference, so $36,750, and 95% LTV based on the appraised value.  A month later we sold our old house, netting six figure proceeds.  We used that money to pay for some initial improvements on the new house, including HW floors throughout before we moved in.  Now we're looking to pay down the mortgage enough to remove PMI (but no more, since I'm in no rush to pay off a mortgage at 2.75%). 

The two options for removing PMI for us would be:

1) Pay down to 80% LTV relative to the spring appraised value.  This is the easiest way.  Their criteria are listed in the OP.

2) Pay down to 75% LTV relative to the current value with improvements (which would be a combination of a big principal payment + pointing to the hardwood floors throughout).

What I'm worried about is... it's easy to figure out what I need to pay to reach 80% LTV relative to the appraised value ($61,532.86).  For #2, also it's easy to figure out what it would take to reach 75% LTV relative to appraised value ($83,282.86), or sale price ($72,032.86), as a ballpark on 75% LTV re: current value.  But I have to make that huge principal payment before I find out what the BPO is.  

Especially after getting burned by a really poor job on the appraisal this spring, I am really worried that I'll pay $62k on the mortgage, request PMI removal, they do the BPO, and they say oops!  your house is only worth $434,900 today!  Down $100 from the original $435k, so sad!  No PMI removal.

I have no specific reason to worry about this, home sales have been higher in the last 6 months than they were in the preceding 6 months.  But everyone told me not to worry about the appraisal last spring, that it would come in at asking, and we got really burned.  I'm very wary.  If I can't remove PMI, I don't want to spend $62k toward the mortgage, KWIM?

ETA:  to answer your question, Homepoint charges us $150 for the BPO.  We're also going to be paying $350 as a processing fee (sigh) to recast the loan with this contemplated large principal payment.  It's cheaper than a refi, but it's still annoying.

[clairebear]

Obviously it's a risk, because as you've said, sold comps are lagging 3 months behind what current market value is. It's frustrating because for BPOs we pull 3 sold comps and 3 listed comps. We can put more weight on currently listed homes if market values are rising more than 5% over the past 6 months, but the final value conclusion has to be bracketed by the sold comps used. So if I can't find a sold comp that is close to what I believe the current market value is I am forced to undervalue the home. I'm provided a form report to fill out with the BPO and there are very strict parameters I am to follow. A lot of this is determined by the lender too as far as comp selection (search distance radius, sold date range allowed) and what is the most heavily weighted criteria or comp.

It sounds like you'd be fine since you are 5 months out from closing and have done improvements. You can challenge a BPO or request a second one (probably paying for the BPO again though) if the first doesn't come in at the needed price point. There is such a huge volume of BPOs right now, a lack of agents to do them and a shortage of comps which makes for some low-quality BPOs completed. I'm doing 23 today alone which is nuts.

[Accountingcat]

Throwing an idea out...are you willing to refinance for less than 30 years? It sounds like refinancing would be easier and there are rates less than 2.75% with no closing fees. I just looked at LenderFi to confirm. - maybe try your numbers there?

[Susie]

Nope. I'm very happy with a 30 year mortgage, and am not interested in trying to move to a 15 year to game the rate down below what I already have for 30 years.

We sent the ~$62k certified check last week along with the recast agreement. Once they apply our payment and the balance on the loan drops, we will spend the $150 to move forward on the PMI process. If they tell us the house is now worth $434,900, instead of the $435k they said it was worth in the spring, and we can't drop PMI because it has "lost value," then we'll reconsider our options. But refinancing is definitely not my first resort.

[Susie]

Update:  today I got an email from HomePoint that our PMI removal request is approved.  We are now at 79.8% LTV relative to the originally appraised value of $435k.  The letter says:

As a replacement for of ordering a BPO, Fannie Mae has provided Home Point with an Automated
Valuation Model (AVM) of your property to validate that the property value has not declined. The
AVM estimates that your property is worth $450,900.00.

So, they're saying it's worth pretty much exactly what we paid for it in May.  I'm good with that.  

PMI will be removed for January 2022.  I am pleasantly surprised how smoothly this went.