Buyers used to have to make a 20% down payment on a home for banks and other lenders to feel secure in giving them a mortgage. Lenders preferred to risk only 75%-80% of the value of a property and to want buyers to risk significant equity as well. However, as home prices have gone up, lenders have devised another solution—private mortgage insurance, or PMI. However, the complaint for this class action alleges that Bank of America, NA has taken advantage of PMI and refused to stop billing borrowers even when the PMI is no longer needed.
PMI is placed on a property when the buyer puts down less than 20%. It covers the difference between what the borrower is putting down and a standard 20% down payment. If the buyer defaults, the insurance pays the difference, leaving the mortgage company to recover its usual 75% to 80%. If the buyer makes payments steadily, however, the PMI will no longer be needed once the buyer’s equity in the property reaches the standard 20%.
The 75% to 80% is known as the loan to value ratio, or LTV ratio.
Plaintiff Brian Shropshire took out a mortgage with Deutsche Bank to buy a home in 2007. The value of the home for the purpose of the mortgage was $176,000. At the time, the LTV ratio required Shropshire to pay for PMI, with a premium of $72.26 per month.
Shropshire’s PMI Disclosure said that the PMI would terminate if he was current on his payments on the earlier of two dates: either (1) the first day of the month after the midpoint date of his loan’s amortization period, or (2) the date when the principal balance of his loan reached 78% of the original value of the property.
The loan was refinanced in 2013, and the complaint says that the refinance did not require PMI. The complaint claims that Shropshire is current on his payments and now owes less than $5,000 on his loan and that in the past six months he has owed less than $50,000. However, Bank of America, the loan servicer, has continued to charge him for PMI.
When Shropshire requested that the PMI be terminated, Bank of America told him that his property would have to be appraised at his expense before the bank would consider that. The complaint alleges that the bank continues to charge him for the PMI because it has a financial incentive and “receives a portion of the premium and is covered for risk of default on the loan.”
The complaint alleges breach of contract and unjust enrichment in addition to violations of Florida law. It identifies the case as a “putative class action” in Paragraph 1, but it does not specifically define the class.