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Sam bought a house that costs $500,000. Sam got a 95% LTV loan.

Sam bought a house that costs $500,000. Sam got a 95% LTV loan. The lender demanded that Sam buy private mortgage insurance to insure the portion of the loan over 75% LTV. Suppose 5 years later, Sam’s mortgage balance is $400,000. However Sam defaults and his house sells for $220,000 in a foreclosure auction. How much will the mortgage insurance company pay Sam’s lender?  

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Expert Solution

GIVEN DATA FROM THE PROBLEM

HOUSE THAT COST $500,000.

SAM GOT A 95% LTV LOAN.

INSURANCE OF LOAN OVER 75%

MORTGAGE BALANCE IS $400,000

HOUSE SELLS FOR $220,000

AS WE HAVE INSURANCE ABOVE 75%

I. E ; 75% * $500,000 = $375000

SINCE THE MORTGAGE VALUE DEPENDS ON THE TIME OF DEFAULT WAS $400,000

WHICH WAS $25,000 IS ABOVE THE VALUE OF $37,5000.

The amount payable by the Mortgage Insurance Company to Sam's Lender is $25000

jeff jeffy answered 2 years ago
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