Mortgage Insurance FAQ

What is private mortgage insurance?
When do I need private MI?
Who buys private borrower-paid MI?
Why is it called "private" MI?
Will a private MI policy make mortgage payments in the event of a member's death?
Why does a member need private MI?
How will private borrower-paid MI affect a member's mortgage loan?
Are private MI costs paid for the life of the mortgage?
Is private MI tax-deductible?

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What is private mortgage insurance?
Private mortgage insurance (MI) is a type of financial guaranty that helps protect Credit Unions against borrower default and the costs of foreclosure. With private MI, a Credit Union may be in a position to accept a lower down payment than would normally be possible. The Credit Union is, in effect, substituting the insurance coverage for the member's equity to cover its losses in the event the Member defaults and it pursues foreclosure.


When do I need private MI?
Private MI protects the Credit Union in the event of Member default and subsequent foreclosure on the home. MI is generally required for any loan with a down payment of less than 20% of the purchase price of the home or less than 20% equity on a refinance, even when a Member has an excellent credit record and the capability to meet mortgage payments.


Who buys private borrower-paid MI?
The Credit Union applies for the coverage when a Member applies for a mortgage loan. The Member generally pays the MI premiums - which can be monthly, annual, or financed, depending on the type of coverage selected. Having this insurance in place allows the Member to purchase a home with, in some cases, no down payment. Without MI, the Member may be required to provide 20% or more of the purchase price as a down payment.


Why is it called "private" MI?
It is called "private" because it differs significantly from some well-known "public" programs offered by government agencies such as the FHA (Federal Housing Administration) or VA (Department of Veterans Affairs).

There are some advantages to using private MI over the public programs available. First, private MI allows much higher loan limits than the FHA or VA. Secondly, coverage is cheaper and a Member can expect faster loan approval, less paperwork and more variety in insurance coverage and premium plans. Finally, private borrower-paid MI coverage may be cancelable*, meaning that the Member will probably pay less for the advantage of a low down payment loan insured by a private mortgage insurer.

*Subject to the legal requirements of the Homeowner's Protection Act of 1998


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Will a private MI policy make mortgage payments in the event of a Member's death?
No. Credit life insurance is life insurance coverage that pays off the mortgage in the event a Member dies, becomes disabled or incurs loss of health or income, according to the terms of the insurance policy. Fire, liability and theft insurance cover the homeowner from losses, according to the terms and conditions of their respective insurance policies. Companies in the CUNA Mutual Group provide a comprehensive array of insurance products. For information on any insurance coverage, call the CUNA Mutual Group Customer Help Center at (800) 356-2644, ext. 6262, or visit their web site.


Why does a Member need private MI?
Most mortgage lenders, including Credit Unions, require private MI when the transaction involves a down payment of less than 20% of the purchase price or less than 20% equity on a refinance. This is not because the Credit Union alone requires it, but because many mortgages are sold in what is known as the "secondary mortgage market," which is a major source of housing credit in the United States today. Traditionally, in order for loans to qualify for sale in the secondary market, they must be insured. Since the secondary market creates the funds necessary to originate mortgage loans, it is a reasonable requirement. Plainly put, private MI limits the lender's risk and makes a low down payment affordable and available to the member.


How will private borrower-paid MI affect a Member's mortgage loan?
The monthly private MI premium will most likely be added to the Member's monthly principal and interest payment, along with the property taxes and insurance. The premiums may be paid in one of three ways: 1. An annual plan where an initial premium is collected at closing, and a smaller renewal premium is collected each year 2. A monthly plan where no initial premium is paid and a regular monthly premium is added to the member's payment and sent to the private mortgage insurer by the credit union 3. A single premium plan where a lump sum is paid at closing covering the insurance costs for several years.


Are private MI costs paid for the life of the mortgage?
The Homeowner's Protection Act of 1998 went into effect on July 29, 1999, making it a requirement for lenders, including Credit Unions, to cancel borrower-paid MI when loans amortize to 78% of the home's original value. When certain cancellation requirements are met, the Member has the right to request cancellation of private MI. Certain high-risk mortgages are treated separately under the law.

Because the Homeowner's Protection Act of 1998 has numerous compliance requirements for lenders and there are many nuances in the provisions, Credit Unions should seek advice about specific implementation issues from their legal counsel.


Is private MI tax-deductible?
Mortgage Insurance premiums were made tax-deductible on federal income tax returns in 2007. The law has been extended through 2010. For more information, click here.

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If you have other questions or concerns, please feel free to contact your CMG MI Account Executive, or call CMG Mortgage Insurance Company at (800) 909-4264.