Short Sales and PMI (foreclosed, negotiation, agents, mortgage companies)

[Lacerta]

I know that PMI (Private Mortgage Insurance, for those not in the know) companies can stop a short sale, even if the lender and seller have both approved the sale.

Today I heard that they may be going further than just "CAN" stop a short sale. One of the agents in my office has been told that the major PMI companies are coming together to publish a database of all the properties, nationwide, that have PMI insurance, and stating that those properties will be automatically denied on a short sale.

The reasoning is that a short sale is a voluntary action, and as an insurance company, they shouldn't have to pay the lender for a voluntary action that the lender approved.

If that is true, then any property that has PMI shouldn't even bother trying to go through the short sale process, which will affect millions of homeowners.

Has anyone heard anything about this upcoming change? It almost sounds too scary to be true, but looking at it from a PMI company's point of view, I could see why it could be true.

[middle-aged mom]

I have not heard of this. There is PMI and there is MI. The latter is a policy taken out and paid for by the lender for the benefit of the lender.

PMI was designed to protect the lender in the event that the sale of foreclosed property was not adequate to cover the loan balance. The role of PMI in a short sale is voluntary. The lender wants to invoke PMI before foreclosure....something out of the ordinary.

PMI companies seem to be requiring sellers to execute unsecured promissory notes equal to 20% +/- of the loan balance, where possible, as a condition of approving the short sale. This is subject to negotiation.

If that does not happen, it's likely the loan will proceed to foreclosure and result in a routine PMI claim. In otherwords, there is nothing in it for a PMI company to prematurely agree to anything, before foreclosure.

If there is any truth in what you heard, it sounds like the PMI companies may be doing what they can to not have to staff an incremental and voluntary business function that has no financial benefit to them. They too, are fighting for their lives, in all this.

Speculation on my part here..... once one walks away from one financial obligation, it becomes easier to rationalize walking away from subsequent obligations. And if the seller is destitute, there are no funds to pay a promissory note. Perhaps PMI companies are finding that a substantial percentage of unsecured promissory notes are not worth the paper they are written on.

[Debsi]

Mortgage companies send short sales to the PMI company for approval. They approve or deny the short sale based on whether the short sale claim or the foreclosure claim will be more expensive for them. If they refuse all short sales, then the mortgage companies will refuse a lot of those short sales as well.

[palmcoasting]

I haven't heard anything about automatic and I don't know that it would be legal for the insurance companies to join together and make a policy of saying "no". I could be wrong.
I will tell you in the short sales I have been handling the PMI company has come back with a demand for 10% of the contract price...so if the bank approves a sale at say $100K the mi co is coming back saying they want 10% additional. The bank won't pay it, it has to be added to the purchase price. Now, it can sometimes be negotiated down but they are demanding money which has stopped two of my shorts from going through. In neither case could I get the bank to negotiate with the mi co.
Just my experience.