Primary Mortgage Insurancemortgage primary insurance
More importantly, it raises the question of the value of mortgage modifications packed as investments. A mortgage debtor has filed a collective suit against JP Morgan Chase & Co. in Fried. "JP Morgan" claiming that JP Morgan breached the Homeowners Protection Act ("HPA") by modifying its mortgage to decrease the amount of capital due.
JP Morgan used a Broker's Price Opinion ("BPO") obtained at the date of the credit change to determine a PMI Cancellation Date rather than using the borrower's house estimate obtained at the date of the credit extension as the foundation for the purported HPA infringement.
In the light of these facts, the Court found that the HPA "establishes a target line (i.e. the date of termination) for each homeowner's mortgage insurance liability on the grounds of the initial value of his home and assesses its progression towards this by considering its capital outstandings. "Fried's mortgage amendment reduced their home balance, albeit the pristine value of their home under the HPA did not alter.
Obviously, the judgment has an impact on the way mortgage providers change credit and charge the PMI. Even more significant, perhaps, and as is apparent from the submissions made in the case by several groups of banks, among them the American Bankers Association, Mortgage Bankers Association and Independent Community Bankers of America, this decision could diminish the value of investments on the basis of amended credit.
The judgment particularly damages creditors and customers by challenging various mortgage purchase agreements in place on the aftermarket. Primary mortgage-backed real estate credits to home owners for the purchase or refinancing of houses are largely funded by the re-sale of these properties on the aftermarket. Hypothecary redemptions offer new mortgage venture funds and create a liquidity, accessable home buyer environment.
In turn, Fannie Mae and Freddie Mac securitise these loans and create preferable asset classes that in turn help capitalise the primary mortgage markets. As a rule, the collateral purchase agreements ensure that the mortgage on which they are based complies with Fannie Mae's policies. Fannie Mae and Freddie Mac's impact makes buyers and financiers believe that these mortgage loans and the resulting bonds are relatively secure commodities.
This decision by the Regional Courts will call these purchase agreements into doubt and could also diminish the fit of the amended mortgage as part of a range of asset management services. In addition to putting creditors at a certain degree of contractual risks, this could hinder some investor entry into the second mortgage markets - thus reducing the disposability of mortgage loans to medium and lower-income buyers.