Erik Reuter wrote:
> So, I have two related questions.
>
> 1) If you have mortgage insurance and negative equity, and you default
> on your mortgage, what are the typical consequences? Can you get
> off scot-free? If you have money, are you likely to get sued by
> someone? Will your credit record be ruined?
Your credit record will take a big hit, at least. And you'll get kicked
out of the house, if you're living in it. So you'll be kicked out and
have a sucky enough credit rating that nobody will let you get another
mortgage for a long time, and you'll be forced to rent for quite awhile.
Now, if you're in a stable position where you're not going to be wanting
to open any additional lines of credit or get any loans for a long time,
walking away from the mortgage on a house you're no longer living in but
have been trying to sell for a long time might not be the worst thing in
the world. But if you can stick it out long enough for the market to do
better, that might be the thing to do. Plus which, there's always the
break on the income taxes that the mortgage interest will give you. It
doesn't make up for throwing money into a hole month after month for a
year, but it helps some, anyway.
> 2) Same question, but if you don't have mortgage insurance, but you have
> negative equity because of a large drop in market value of the home.
I don't think you can *have* a mortgage without having paid into some
mortgage insurance pool at the time of the loan. I think it's included
in the closing costs. If you *really* want to know, I can dig up the
paperwork on the house we just sold and see what sort of a line-item
there would have been for that. I *know* that part of the closing costs
when we bought that house were for some mortgage insurance. Of course,
maybe this is just Texas law.
> In case you are wondering, the reason I am asking is because a
> mortgage insurance company, MGIC Investment Corp. (NYSE:MTG) recently
> came to my attention. I'm trying to understand how this business
> works. Interestingly, their stock is trading at very low prices relative
> to historical earnings, which indicates that Mr. Market thinks that
> there will be either a significant increase in mortgage defaults or a
> very great decrease in the demand for mortgage insurance in the near
> future.
If fewer houses are being bought, that will push down the demand for the
insurance. Or there could be a prediction of increase in mortgage
defaults, which doesn't say much for the feeling about the economy in
general.
Or it could be that a significant portion of the stock was owned by
mutual funds who had people wanting to cash out, and that that was
something the fund managers chose to sell when they were figuring out
what to liquidate. Maybe some of the fund holders needed cash to help
make payments on the mortgages after pay cuts or layoffs? :P
My understanding of how the mortgage insurance works (and I may be way
off) is that you pay in at the time of closing on the mortgage, your
money is put in a pool with a lot of other people's, and if there is
enough left over in your pool after you've paid off the loan, you might
get a little bit back. This is the way the system was working from the
time my father-in-law bought a house in Richardson, TX in 1960 or 1961
until the 30-year note was paid off; he got a little bit back from the
whole thing. I'm not sure what happens if you sell the house or
refinance before the payment period is up.
(Hope this post hasn't been a total waste of bandwidth.)
Julia
_______________________________________________
http://www.mccmedia.com/mailman/listinfo/brin-l
