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10. "We'll give you a severe case of PMI."
After property values rose in Coon Rapids, Minn., John and Corrine Lee Thomas were certain that their home equity topped 20%. That meant (or so the Thomases thought) that they would no longer have to pay $60 a month for Private Mortgage Insurance (PMI) - insurance to protect against foreclosures that lenders require of borrowers who make small down payments. Federal law lets homeowner's request cancellation of PMI if they can prove their home has appreciated enough to create 20% equity, and some states, including Minnesota, let them cancel it outright. Unfortunately, as Richard Roll, president of the American Homeowners Association, puts it, "PMI only protects the lender, and they don't want to weaken that protection."
The result: Some lenders can make it nearly impossible to cancel PMI. In the Thomases' case, their lender, Countrywide, refused to accept the first appraisal the couple obtained, telling the Thomases that they had to use a Countrywide-certified appraiser. The Thomases then found an appraiser off Countrywide's list, but that appraisal got rejected too. Countrywide insisted they had to hire an appraiser through an affiliated company. Finally, the Thomases gave up and got rid of PMI by refinancing their loan. In a settlement the state of Minnesota reached on behalf of consumers like the Thomases, Countrywide denied any wrongdoing, but agreed to compensate customers who paid PMI.
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