PMI and 80/20 loan

[Anonymous]

When borrowers go the 80/20 route to avoid PMI, do they use different lenders? If not, what makes the situaion safer for the lender when the borrower is still borrowing 100% of the homes value?

Also, since the rule to avoiding PMI is having lower than 80% LTV, why is the second loan not considered a 20% downpayment?

[Anonymous]

2 things

80/20 loans are pretty hard to get now adays.

Also, it is not considered a 20% down payment because it is not a down payment.  There is another lien on the property. 

[ShanetheMortgageMan]

80/20 loans aren't very common anymore, I don't know of any lenders still offering them.  Back when you could do them in their "glory" you could pick a different 1st & 2nd mortgage lender.  However lending guidelines tightened up and the secondary market for stand alone 2nd mortgages dried up, so those who did 2nd mortgages without having it done with a 1st mortgage from the same lender started to reduce their CLTV's to 95%, and then to 90% which is where most of them lie today.  As far as the lenders who still did the 1st & 2nd mortgage togheter, they still were doing 80/20's for many months after you could piece together two lenders to do an 80/20, but eventually they too started reducing the CLTV of their 2nd mortgages to where 80/10/10 combo loans are typically the highest combo loan you can find.

In that situation the 2nd mortgage is a down payment on the 1st mortgage, but there is still the 2nd mortgage closing simultaneously to 100% CLTV, meaning you still aren't putting and money down on the transaction itself.

[Anonymous]

How do lenders benefit from a combo loan? Why would PMI not be required and would a borrower be able to qualify for the best rates as if he/she were putting 20% down in cash?

[ShanetheMortgageMan]

The lenders turn an 80/20 loan into their benefit by charging you a higher rate on the 2nd mortgage, as well as a higher rate on the 1st mortgage than if you were to only have a 1st mortgage at 95% LTV or lower.  So they don't qualify for the same rates.