So you purchased your East Valley home with a 80/20 loan so you would not have PMI. Now you need to sell your home and you find out the PMI company is asking for a cash contribution or a note for $10,000 to be signed. Why is that?

Well it turns out that investors who purchased your mortgage didn’t trust you so they purchased PMI for them. That is all well and good, and allowed, but that PMI company is not allowed to ask you for a contribution. Well they can, but they are not supposed to.

When they do this it is called 3rd party bad faith. The problem, even through you are right it is going to be more expensive to fight it than just pay it. I think this is going to end up leading to a class action law suite.

Here is today’s list of top real estate posts of the day.

1) Just When You Thought It Was Safe… – Once again Elizabeth Newlin thoroughly entertains as she educates. I personally wish she wrote more, her stories are so entertaining when she does. Good education in here for those looking to purchase Short Sales.

2) What is LPMI? – What is lenders paid mortgage insurance? It is an alternative to PMI you may want to consider.

3) Home Shoppers Unlikely to Obtain Estimated Good Faith Estimate – HUD wanted the GFE to be a tool to rate shop, but because lenders are locked into what is on the GFE (and things change quickly) they are reluctant to give one out.

4) If you think a real estate transaction is easy, think again. – Funny how timing works, I was sitting at the Pub N’ Grub last night with another agent discussing this very issue over beers.

5) Let Uncle Sam Pay to Replace Your Drafty Windows – You have until the end of the year to make energy saving upgrades in your house and get a tax credit. Here is a good post on tips for replacing your windows. The only part I don’t like is the headline, Uncle Sam isn’t paying you squat, it is the tax payers in the country that are. But the program is out there, I would take advantage of it if you need upgrades.

6) Hate your real estate agent? Here’s why! – I found this very interesting, the market condition seems to be tied to ones satisfaction with their real estate agent.

7) CREATING LEADS VERSUS CONVERTING LEADS – Great piece on the difference between generating leads and making them customers. You need to find what works for you and concentrate on that.

8) What’s ‘Good’ Leverage? Maybe Not What You Thought – This is what I love about Jeff Brown, he takes your common perception of investing and spins it upside down. He makes you question everything you thought you knew about investing.

9) The Dubious Resting Place of TARP Funds – So where did all that TARP money go? The answer may (or may not) surprise you.

10) Multiple Offers, 2010 Style… – We have been dealing with it for a year now in the Tempe/Phoenix area. Sounds like other parts of the country are now facing the same thing.

1) Realtor Property Resource (RPR) & you – A call to action – It’s been a fun week in the real estate community thanks to RPR, this won’t be the last day it dominates the top posts. Here is a video from Greg Cooper asking for input.

2) In which I announce the death of RPR – Rob Hahn has been in the forefront of the RPR discussion for the past week and has been a must read. Here he talks about how RPR may never likely get off the ground if the MLS companies do not play ball.

3) Liveblogging Dale Ross and Marty Frame presenting RPR to the MLS Executive Session – Not able to attend NAR and get the blow-by-blow, Rob took care of it for you.

4) Home energy audit finds holes in home – Want to save money? Find out where your home is being inefficient.

5) 33 quality touches for real estate agents – Ever read Gary Keller’s book “The Millionaire Real Estate Agent” and think touching someone 33 times in a year may be overkill? Here is a way to do it with today’s modern technology.

6) Middle-market is next home segment to improve – Does the start of the new $6500 tax credit for move up buyers mean the mid-priced homes are the next to start to rebound?

7) 2009 National Association of Realtors profile of home buyers and sellers just released – Everything you always wanted to know about buyers and sellers in 2009, including 90% now start their home buying search online.

8 ) Video gets real estate agents more listings: WellcomeMat report – Video is overtaking photos as the thing consumers want to see.

9) New tool to estimate closing costs when selling your home – Want to understand how much money you may need to bring to closing, this will give you a good estimate.

10) Jumbo loan modifications: The role of mortgage insurance – Justin McHood gives you a better understanding of Jumbo loans and mortgage insurance.

Top 5 posts of the day for 7/8/2009 1) Home loan refinancing anti-foreclosure effort results disclosed – Loan modifications are up this year, but is it really enough to make a difference on upcoming foreclosures?

2) Mortgage rates continue to drop – After going up for the last month, mortgage rates seem to be inching back down slowly.

3) PMI: US Home prices likely lower in 2 years – PMI Group is estimating home prices in the US will drop even more over the next two years. This is why national housing starts don’t mean a lot, all real estate is local.

4) Requirements to qualify for an Obama Mortgage refinance loan – Are you looking to refinance under the new government programs? This post has a good summary of basic requirements.

5) Looks like HVCC is slowing home sales – HVCC, my favorite subject these days. While many are out there saying HVCC has not had a negative impact, I know very well from experience that at least in AZ that is not the case. In AZ it has greatly effected the real estate market.

The idea behind mortgage insurance is relatively simple: an insurance entity agrees to insure against default on a loan in exchange for premium payments.

The insuring entity may be a “private” mortgage insurance company or a government entity, but the company that issues mortgage insurance is not a lender.

Conventional loans use Private Mortgage Insurance – also known as PMI

When you buy a property using conventional financing, you will be required to put down a 20% down payment or purchase private mortgage insurance. When you have mortgage insurance on conventional loans, you can usually get your lender to drop your private mortgage insurance once you reach a 20% equity point in your property – and conventional loans allow for property appreciation when making the calculation.

If you think that you have 20% equity in your property and want to stop paying monthly private mortgage insurance, the first step is to contact your lender. Each lender has different procedures in place, but normally you can expect to get an appraisal done on the property and have some kind of form to fill out and submit to the lender. Specific questions about the process should be directed to your current lender because each lender is slightly different in their requirements for dropping PMI.

Lender Paid Mortgage Insurance

For conventional loans, there is also something called LPMI – which is short for Lender Paid Mortgage Insurance. The way that Lender Paid Mortgage Insurance works is that the lender agrees to pay the Private Mortgage Insurance in exchange for a slightly higher interest rate. LPMI programs were very popular a couple of years ago, now they are fairly rare to find.

FHA loans use Mortgage Insurance underwritten by the Federal Housing Administration

The way that mortgage insurance works for Arizona FHA loans is really in two parts: 1. Up Front Mortgage Insurance Premium (also known as UFMIP) and then Monthly Mortgage Insurance (also known as MMI or MI). Up front mortgage insurance premium is usually 1.5% – 3% of your loan amount (depending on which FHA program you are participating in) and is required to be paid up front, although it can be financed into the loan. The Up front mortgage insurance premium is amortized over a period of 5 years and should you refinance into a new FHA program during those 5 years, FHA will allow you to use whatever is left in your UFMIP account as a credit towards setting up a new loan.

FHA monthly mortgage insurance is figured at a factor of .55% of your loan amount paid monthly. So for a $100,000 FHA loan, the annual monthly mortgage insurance due would be $550 and it would be paid monthly – or about $46 per month. FHA monthly mortgage insurance must be paid until you have paid down the loan to 80% of what was originally borrowed – it does not factor in property appreciation at all. So if you borrowed $100,000 originally, you would be required to pay monthly mortgage insurance until you reached a loan amount of $80,000.

Popular Loan Programs That Don’t Require Mortgage Insurance

Not all loan programs require mortgage insurance – some of the popular loan programs that do not require any mortgage insurance include:

• VA loans
• USDA loans
• Home Path loans

Is mortgage insurance a bad thing? Not necessarily. By purchasing mortgage insurance, buyers can become homeowners with increased buying power – a great benefit. First-time buyers can use a low down payment to help them afford their first home, or to purchase a more expensive home sooner. Repeat home buyers can put less money down and gain significant tax advantages because they will have more deductible interest to claim. They can also use the cash they would have used for a large down payment for investments, moving costs or other expenses.

Justin McHood is a nationally published mortgage expert who lives and works right here in Arizona. You will normally find him wearing a blue starched shirt (he says that it goes well with is orange hair) and you can learn more about him at ArizonaMortgageTeam.com