This is my response from a question posted on Activerain
Hi Susan, I’m in Las Vegas and my team and I do a number of short sales. I’m going to throw my own personal opinion out there. I would say that in Vegas, most 100% financed homes do NOT have PMI. I believe the majority of the 100% financed homes have 80/20 loans to avoid PMI. Out here, when a home is foreclosed on the second is wiped out completely. With the decline of housing prices out here in Las Vegas (from the peak, when a lot of people pulled the remaining equity out of their homes), taking that 20% off the top doesn’t even touch the amount prices have depreciated. So, when we go to the bank, we end up asking the bank to come down off the 80% portion of the loan and there usually isn’t PMI. The banks are willing to short sell the property because they don’t want to own the property and add to their portfolio of non-performing loans. The lenders do evaluate properties (by sending REO agents out to do BPOs) to determine if they should add PMI, but I think they are behind the power curve on that…and no, the homeowner doesn’t even know sometimes. But to get down to your question, a resounding YES, a call should be made to the lender to determine if they will accept a short sale. Unfortunately, many lenders won’t even talk to you until you have a complete short sale package, complete with an offer. Your other question, on what “loss” PMI will cover and will not cover is a great question. I will have to do some research to find that answer. I would like to know that myself. Of course their are exceptions to everything, and my answers are general answers and do not apply to EVERY single situation.