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Private Mortage Insurance
Old 10-15-2008, 07:41 PM   #1
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Private Mortage Insurance

Remember PMI? You know private mortage insurance. People paid Billions and Billions of dollars into these policies. It's been going on as long as I remember, at least 40 years.

What was it's purpose? Well, to protect the lender...

Private Mortgage Insurance (PMI) is insurance that protects your lender against non-payment should you
default on your loan. It's important to understand that the primary and only real purpose for mortgage
insurance is to protect your lenderónot you. As the buyer of this coverage, you're paying the premiums, so
that your lender is protected. PMI is often required by lenders due to the higher level of default risk that's
associated with low down payment loans. Consequently, it's sole and only benefit to you is a lower down
payment mortgage.

O.K. fair enough. But what happened when the first large scale collapse happened?

Did this insurance pay off the banks? I can't seem to get an answer on this.

No one seems to know what happened. At first people told me it didn't apply to sub-prime but I found out that it did. Then of course there is everything besides sub-prime that was covered.

Just another scam or yet to hit?


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Old 10-15-2008, 07:45 PM   #2
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What I remember is that most people that bought recently didn't have PMI. This was due to them getting a second loan to make the 20% downpayment that kept you from having to have PMI. I suspect that most that got loans that required PMI are probably able to pay their mortgages. And the ones that can't the PMI will pay off since it is backed by sterling companies like AIG.

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Old 10-15-2008, 07:57 PM   #3
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Go take a look at the mortgage insurers. Their industry association is the Mortgage Insurance Companies of America, and I believe their site is or some such.

The short answer is that PMI is primarily done on conforming mortgages, most of which get sold to Fannie and Freddie. During the boom times, the mortgage insurers were squeezed because piggybacks were popular and cheap, although they all have enough exposure from those years to get bloodied. But the primary beneficiary of PMI is Fannie and Freddie, and they are getting paid by the mortgage insurers.
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