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We should first provide a couple of definitions. Mortgage insurance is a way for lenders to manage their risk when a borrower has less than 20% equity in a property—in other words, when their mortgage is for more than 80% of the property’s value. The equity above the mortgage is referred to as protective equity. You may think of it as skin in the game. The thinking is that a borrower with at least 20% equity above the mortgage is unlikely to walk away from the property versus choosing to default.If a borrower stops making their payments and the lender has to foreclose to get their money back, mortgage insurance steps in to make them whole if the property does not sell for enough to pay off the loan and cover the costs of the sale. If a borrower’s down payment is 10%, the lender will typically require 25% insurance coverage. This means that the insurance will cover up to 25% of the purchase price of the home in the event of default and subsequent sale by the lender.Mortgage insurance for conventional loans (as opposed to government loans, such as FHA or USDA) is issued by private companies, hence the term, Private Mortgage Insurance, or PMI.Insurance for FHA loans, which require a relatively small down payment (3.5%), have their own type of insurance, technically called Mutual Mortgage Insurance, or MMI. You may also see the term abbreviated MIP, for Mortgage Insurance Premium. The terms are essentially interchangeable. FHA insurance is called “mutual” because the loans are self-insured by the Department of Housing and Urban Development (HUD). It is important to be aware of the differences between PMI and MMI. Today, FHA insurance remains in place for the life of the loan, regardless of how much equity the borrower has accumulated. This means that the only way to remove that program’s MI is to refinance into a conventional loan.PMI is a different matter. Lenders will allow a borrower to remove PMI when, at a minimum, they can show thatThere is at least 20% equity in the property based on the current market valueThe borrower’s payment record has been satisfactory for at least the past 12 monthsLenders have different requirements for how long a borrower must pay PMI. Some will allow removal in as little as six months. Others may require as many as 24 months before they will consider allowing a borrower to drop PMI.To begin the process of PMI removal, you should first call the lender’s customer service department. You’ll find the toll-free number on the monthly statement. Ask them what their policy for PMI removal is. Find out how long you must keep the PMI in place, and what kind of documentation they require to document the equity. Some may require a full appraisal, as they likely did when you purchased the home. Others may settle for a “drive-by” appraisal. These reports typically cost $500 and $350, respectively.Before spending the money for an appraisal, you should get at least a rough idea of the likely value of your home. You can do this by talking to your friendly neighborhood Realtor (possibly the one who sold you the home) and ask them to give you a comparative market analysis (CMA). This is not a substitute for an appraisal, but it will give you an idea of the value by using the same data an appraiser would use. Realtors are generally eager to do CMAs as a service because it could lead to more business someday.If the CMA gives you an acceptable value, order the appraisal according to the guidelines the lender gives you. They may have preferred appraisers or a preferred company, so you want to be sure they’ll accept the report you get for them.There are people who view any type of mortgage insurance as some sort of punishment for anyone who doesn’t make the “normal” 20% down payment. This is an unfortunate misconception. Mortgage insurance is simply an alternative to a large down payment—and the down payment is the primary and largest hurdle for people trying to get into the housing market.To put the PMI numbers into perspective, someone buying a $300,000 home with a 10% down payment (90% loan) will pay as little as $68 per month if they have a 760 credit score. Assuming modest annual appreciation (4%), they’ll be in a position to drop PMI in about 24 months. They will have paid $1,632 for mortgage insurance over that time. If the property value has increased by $30,000, their equity will have doubled.Most people would call that a good investment.

You’ll have to get your contract refinanced by contacting your lender, but you will end up paying more interest than a 15 year note, as the term increases so does the interest rates. Terms for refinancing come under the mortgage modification and it depends upon the lender firm, if it is ready to make modifications or not. Terms of contract play an important role, you might want to read those first. Most importantly borrower needs to approach for modifications.Terms may vary from one mortgage type to another and lenders decides your eligibility based on your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow.For payment structure comparison: Refinance Into 15-Year Mortgage and Save Money.For mortgage refinancing fees: How Much Does it Cost to Refinance a Mortgage. or Understand the Real Cost of Refinancing A Mortgage | Investopedia.Refinancing CostIt is not unusual to pay 3 percent to 6 percent of your outstanding principal in refinancing fees. These expenses are in addition to any prepayment penalties or other costs for paying off any mortgages you might have.Refinancing fees vary from state to state and lender to lender. Here are some typical fees and average cost ranges you are most likely to pay when refinancing. For more information on settlement or closing costs, see the Consumer's Guide to Settlement Costs.Tip: You can ask for a copy of your settlement cost papers (the HUD-1 form) one day in advance of your loan closing. This will give you a chance to review the documents and verify the terms.Application fee. This charge covers the initial costs of processing your loan request and checking your credit report. If your loan is denied, you still may have to pay this fee.Cost range = $75 to $300Loan origination fee. The fee charged by the lender or broker to evaluate and prepare your mortgage loan.Cost range = 0% to 1.5% of the loan principalPoints. A point is equal to 1 percent of the amount of your mortgage loan. There are two kinds of points you might pay. The first is loan-discount points, a one-time charge paid to reduce the interest rate of your loan. Second, some lenders and brokers also charge points to earn money on the loan. The number of points you are charged can be negotiated with the lender.Cost range = 0% to 3% of the loan principalTip: The length of time that you expect to keep the mortgage helps you determine whether it is worthwhile to pay points up front to reduce your interest rate. Unlike points paid on your original mortgage, points paid to refinance may not be fully deductible on your income taxes in the year they are paid. Check with the Internal Revenue Service to find the current rules for deducting points.Appraisal fee. This fee pays for an appraisal of your home, in order to assure the lenders that the property is worth at least as much as the loan amount. Some lenders and brokers include the appraisal fee as part of the application fee. You are entitled to a copy of the appraisal, but you must ask the lender for it. If you are refinancing and you have had a recent appraisal, you can check to see if the lender will waive the requirement for a new appraisal.Cost range = $300 to $700Inspection fee. The lender may require a termite inspection and an analysis of the structural condition of the property by a property inspector, engineer, or consultant. Lenders may require a septic system test and a water test to make sure the well and water system will maintain an adequate supply of water for the house. Your state may require additional, specific inspections (for example, pest inspections in southern states).Cost range = $175 to $350Attorney review/closing fee. The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender.Cost range = $500 to $1,000Homeowner's insurance. Your lender will require that you have a homeowner's insurance policy (sometimes called hazard insurance) in effect at settlement. The policy protects against physical damage to the house by fire, wind, vandalism, and other causes covered by your policy. This policy insures that the lender's investment will be protected even if the house is destroyed. With refinancing, you may only have to show that you have a policy in effect.Cost range = $300 to $1,000FHA, RDS, or VA fees or PMI. These fees may be required for loans insured by federal government housing programs, such as loans insured by the Federal Housing Administration (FHA) or the Rural Development Services (RDS) and loans guaranteed by the Department of Veterans Affairs (VA), as well as conventional loans insured by private mortgage insurance (PMI). Insured loans and guarantee programs generally apply if the amount you are borrowing is more than 80% of the value of the property. Both government and private mortgage insurance cover the lender's risk that you will not make all the loan payments.Cost ranges: FHA = 1.5% plus 1/2% per year; RDS = 1.75%; VA = 1.25% to 2%; PMI = 0.5% to 1.5%Title search and title insurance. This fee covers the cost of searching the property's records to ensure that you are the rightful owner and to check for liens. Title insurance covers the lender against errors in the results of the title search. If a problem arises, the insurance covers the lender's investment in your mortgage.Cost range = $700 to $900Tip: Ask the company carrying your current title insurance policy what it would cost to reissue the policy for a new loan. This may reduce your cost.Survey fee. Lenders require a survey, to confirm the location of buildings and improvements on the land. Some lenders require a complete (and more costly) survey to ensure that the house and other structures are legally where you say they are. You may not have to pay this fee if a survey has recently been conducted for your property.Cost range = $150 to $400Prepayment penalty. Some lenders charge a fee if you pay off your existing mortgage early. Loans insured or guaranteed by the federal government generally cannot include a prepayment penalty, and some lenders, such as federal credit unions, cannot include prepayment penalties. Also some states prohibit this fee.Cost range = one to six months' interest paymentsBack to top"No-cost" RefinancingLenders often define "no-cost" refinancing differently, so be sure to ask about the specific terms offered by each lender. Basically, there are two ways to avoid paying up-front fees.The first is an arrangement in which the lender covers the closing costs, but charges you a higher interest rate. You will pay this higher rate for the life of the loan.Tip: Ask the lender or broker for a comparison of the up-front costs, principal, rate, and payments with and without this rate trade-off.The second is when refinancing fees are included in ("rolled into" or "financed into") your loan--they become part of the principal you borrow. While you will not be required to pay cash up front, you will instead end up repaying these fees with interest over the life of your loan.Tip: When lenders offer a "no-cost" loan, they may include a prepayment penalty to discourage you from refinancing within the first few years of the loan. Ask the lender offering a no-cost loan to explain all the fees and penalties before you agree to these terms.For more details: A Consumer's Guide to Mortgage RefinancingsHope that above details helps.

Fannie Mae and Freddie Mac were created by Congress. They perform an important role in the nation’s housing finance system – to provide liquidity, stability and affordability to the mortgage market. They provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing.Fannie Mae and Freddie Mac buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that may be sold. Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending. The Enterprises’ purchases help ensure that individuals and families that buy homes and investors that purchase apartment buildings and other multifamily dwellings have a continuous, stable supply of mortgage money.By packaging mortgages into Mortgage Backed Securities (MBS) and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing. That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers.Fannie Mae and Freddie Mac also can help stabilize mortgage markets and protect housing during extraordinary periods when stress or turmoil in the broader financial system threaten the economy. The Enterprises’ support for mortgage lending that finances affordable housing reduces the cost of such borrowing.Fannie Mae and Freddie & 2008 Crisis :When the housing bubble of 2001-2007 burst, it caused a mortgage security meltdown. This contributed to a general credit crisis, which evolved into a worldwide financial crisis. Many critics have held the United States Congress - and its unwillingness to rein in Fannie Mae and Freddie Mac - responsible for the credit crisis. In this article, we'll examine the extent to which Fannie Mae, Freddie Mac and their allies in Congress contributed to the largest financial and economic crisis since the Great Depression.A Brief History of Mortgage MarketsFor most of the twentieth century, mortgage lending took place mostly at banks, thrifts, credit unions, and savings and loans. The most common type of mortgage was a fixed-rate mortgage and most of the financial institutions originating mortgages held the mortgages that they originated on their books.Starting in 1968, when Fannie Mae was chartered by the U.S. Congress as a government-sponsored enterprise (GSE), and two years later when Freddie Mac was chartered as the same, things began to change quickly. (Fannie Mae was originally created in 1938, but until its privatization in 1968 it was a part of the U.S. government). Fannie Mae and Freddie Mac created a liquid secondary market for mortgages. This meant that financial institutions no longer had to hold onto the mortgages they originated, but could sell them into the secondary market shortly after origination. This in turn freed up their funds such that they could then make additional mortgages.Fannie Mae and Freddie Mac had a positive influence on the mortgage market by increasing home ownership rates in the United States; however, as history has proved, allowing Fannie Mae and Freddie Mac to function as implied government-backed monopolies had major repercussions that far outweighed the benefits these organizations provided.The Privileges of GSE StatusAccording to Fannie Mae and Freddie Mac's congressional charters, which gave them GSE status, they operated with certain ties to the United States federal government and, as of September 6, 2008, were placed under the direct supervision of the federal government.According to their congressional charters:The president of the United States appoints five of the 18 members of the organizations' boards of directors.To support their liquidity, the secretary of the Treasury is authorized, but not required, to purchase up to $2.25 billion of securities from each company.Both companies are exempt from state and local taxes.Both companies are regulated by the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA). The FHFA regulates the financial safety and soundness of Fannie Mae and Freddie Mac, including implementing, enforcing and monitoring their capital standards, and limiting the size of their mortgage investment portfolios; HUD is responsible for Fannie and Freddie's general housing missions.Fannie and Freddie's GSE status created certain perceptions in the marketplace, the first of which was that the federal government would step in and bail these organizations out if either firm ever ran into financial trouble. This was known as an "implicit guarantee".The fact that the market believed in this implicit guarantee allowed Fannie Mae and Freddie Mac to borrow money in the bond market at lower rates (yields) than other financial institutions. The yields on Fannie Mae and Freddie Mac's corporate debt, known as agency debt, was historically about 35 basis points (.35%) higher than U.S. Treasury bonds, while 'AAA-rated' financial firms' debt was historically about 70 basis points (.7%) higher than U.S. Treasury bonds. A 35-basis-point difference might not seem like a lot, but on borrowings measured in trillions of dollars, it adds up to huge sums of money.Private Profits With Public RiskWith a funding advantage over their Wall Street rivals, Fannie Mae and Freddie Mac made large profits for more than two decades. Over this time period, there was frequent debate and analysis among financial and housing market professionals, government officials, members of Congress and the executive branch about whether Fannie and Freddie's implied government backing was working mostly to benefit the companies, their management and their investors, or U.S. homeowners (particularly low-income homeowners) as was part of these firms' HUD-administered housing mission.One thing was clear: Fannie Mae and Freddie Mac were given a government-sponsored monopoly on a large part of the U.S. secondary mortgage market. It is this monopoly, combined with the government's implicit guarantee to keep these firms afloat, that would later contribute to the mortgage market's collapse.Fannie and Freddie's GrowthFannie Mae and Freddie Mac grew very large in terms of assets and mortgage-backed securities (MBSs) issued. With their funding advantage, they purchased and invested in huge numbers of mortgages and mortgage-backed securities, and they did so with lower capital requirements than other regulated financial institutions and banks.Figures 1 and 2, below, produced by the companies' former regulator, the Office of Housing Enterprise Oversight, show the incredible amount of debt issued by the companies, their massive credit guarantees, and the huge size of their retained portfolios (mortgage investment portfolios). U.S. Treasury debt is used as a benchmark.Source: Office of Federal Housing Enterprise OversightSource: Office of Federal Housing Enterprise OversightA Cause for ConcernFannie Mae and Freddie Mac had many critics who tried to raise a red flag of concern about the risks the companies were allowed to take thanks to their implicit government backing. However, despite these early warning cries, Fannie Mae and Freddie Mac found many allies in Congress.Maintaining MonopoliesWhile Fannie Mae and Freddie Mac's rivals, along with some public authorities, called for tighter regulation of the mortgage giants, the companies hired legions of lobbyists and consultants, made campaign contributions through their own political action committees, and funded nonprofit organizations to influence members of the U.S. Congress to ensure that they were allowed to continue to grow and take on risk under their congressional charters and implied federal backing.The GSE's Wall Street Rivals Join the PartyIt should come as no surprise that Fannie and Freddie's rivals on Wall Street wanted in on the profit bonanza of securitizing and investing in the portion of the mortgage market that the federal government had reserved for Fannie Mae and Freddie Mac. They found a way to do this through financial innovation, which was spurred on by historically low short-term interest rates.Starting in about 2000, Wall Street began to make a liquid and expanding market in mortgage products tied to short-term interest rates such one-year CMT, MTA, LIBOR, COFI, COSI and CODI. These adjustable-rate mortgages were sold to borrowers as loans that the borrower would refinance out of long before the rate and/or payment adjusted upward. They frequently had "exotic" characteristics such as interest-only or even negative-amortization features. In addition, they were frequently made with lax underwriting guidelines such as stated income and/or stated assets. Subprime lending took off.Investors such as pension funds, foreign governments, hedge funds and insurance companies readily purchased the sophisticated securities Wall Street created out of all the mortgages it was now purchasing. As Fannie Mae and Freddie Mac saw their market shares drop, they too began purchasing and guaranteeing an increasing number of loans and securities with low credit quality.The Party Ends When Home Prices Stagnate and FallIt's a simple fact that when home prices are rising, there is less risk of mortgage default. The equity in a home is the single biggest risk measure of default. Homeowners with large amounts of equity do not walk away from their mortgages, and can usually refinance out of a mortgage with soon-to-be-expected payment increases into another mortgage with low initial payments. This is the model upon which homeowners, mortgage originators, Wall Street, credit rating agencies and investors built the mortgage bonanza. When the housing bubble burst, so did all of their sophisticated risk models.In 2007, Fannie Mae and Freddie Mac began to experience large losses on their retained portfolios, especially on their Alt-A and subprime investments. In 2008, the sheer size of their retained portfolios and mortgage guarantees led the FHFA to conclude that they would soon be insolvent. By September 6, 2008, it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into "conservatorship". American taxpayers were left on the hook for future losses beyond the companies' existing - and shrinking - capital cushions.Conclusion: The U.S. Congress is Largely to BlameMembers of the U.S. Congress were strong supporters of Fannie Mae and Freddie Mac. Despite warnings and red flags raised by some, they continued to allow the companies to increase in size and risk, and encouraged them to purchase an increasing number of lower credit quality loans. While it is probable that Wall Street would have introduced innovative mortgage products even in the absence of Fannie Mae and Freddie Mac, it might be concluded that Wall Street's expansion into "exotic" mortgages took place in part in order to compete and take market share from Fannie Mae and Freddie Mac. In other words, Wall Street was looking for a way to compete with the implicit guarantee given to Fannie Mae and Freddie Mac by the U.S. Congress.Meanwhile, Fannie Mae and Freddie Mac's debt and credit guarantees grew so large that Congress should have recognized the systematic risks to the global financial system these firms posed, and the risks to U.S. taxpayers, who would eventually foot the bill for a government bailout.Source : Investopedia and Public Domain