Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Speaking of PMI
Old 03-18-2008, 06:24 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 260
Speaking of PMI

Another post about buying a home and how much of a ripoff PMI is made me think.

Where is all this PMI when you need it. Shouldn't the billions of dollars spent in PMI be preventing this (so called) mortgage crisis right now?

Which makes me think of the first house I bought and about how I told the mortgage lender "oh, I don't need PMI, my job is very secure, that's one insurance that I really don't need." I'm very surprised, looking back now that she didn't laugh at me. But REALLY - why would you in the real word, buy insurance that protects someone else. The insurance that you buy should be in case YOU have to default on the loan, and should protect the person who pays it. I guess though, that if it did, people would be more prone to defaulting and letting insurance cover it.

But still - I don't see how all of the money paid into PMI by so many people over so many years, hasn't protected banks during this small(ish) "crisis."
virginia is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-18-2008, 06:49 PM   #2
Recycles dryer sheets
Arc's Avatar
 
Join Date: Sep 2006
Posts: 372
Weren't a lot of these trick mortgages 2 separate loans combined? One a mortgage for 80% (no PMI) and one a Home Equity Loan not requiring PMI?
Arc is offline   Reply With Quote
Old 03-18-2008, 06:51 PM   #3
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 260
Oh, that's right. That was part of the purpose I guess, to eliminate PMI. Wow, that makes it even more obvious that the banks need to suffer for their stupid lending practices.
virginia is offline   Reply With Quote
Old 03-18-2008, 06:51 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
Many of the borrowers got around PMI with 80/10/10s and 80/15/5s or even 80/20/0s. The second mortgage lenders (or those who bought the CMOs from the seconds) must have taken it in the shorts in some markets.

I would think PMI would kick in on foreclosures where the owners walked away or couldn't pay, but maybe there's something I don't know...
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 03-19-2008, 06:49 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Two thoughts:

1) Yes, piggyback seconds cut PMI out of the loop in a lot of transactions

2) Even so, most of the mortgage insurers wrote enough business that they are now paying out quite a lot of cash. Go look at the sorry state of TGIC, PMI, MTG, RDN, etc.

Now that piggyback seconds are pretty much a thing of the past, your only real alternative is PMI if you want to buy or refi with less than 20% down. Fortunately (?), Congress has eased the pain a bit by making PMI deductible for those making under $100k. Not surprisingly, all of the surviving mortgage insurers have all the business they can handle (and then some), so they are raising prices and reducing the risk they are willing to take on. I personally think that the mortgage insurers are now set up to be fat cats for the next decade, although you'd have to be confident that you could pick teh ones that will definately survive.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 03-19-2008, 07:25 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
Quote:
Originally Posted by brewer12345 View Post
I personally think that the mortgage insurers are now set up to be fat cats for the next decade, although you'd have to be confident that you could pick teh ones that will definately survive.
I agree. It reminds me quite a lot of the property/casualty insurance industry after Katrina. Suddenly the strong players had more pricing power than ever, so it seemed, and were cautious about were writing new business -- demanding a strong "risk premium" to write it. And when nature settled down and no repeats of a supercat event occurred domestically in 2006 or 2007, they made money hand over fist.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 03-19-2008, 07:56 AM   #7
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 328
Quote:
Originally Posted by ziggy29 View Post
Many of the borrowers got around PMI with 80/10/10s and 80/15/5s or even 80/20/0s. The second mortgage lenders (or those who bought the CMOs from the seconds) must have taken it in the shorts in some markets.

I would think PMI would kick in on foreclosures where the owners walked away or couldn't pay, but maybe there's something I don't know...
I see the point of people avoiding PMI. But then again, the lender "supposedly" secured the possibility of the foreclosure by increasing the rates on the secondary (or third) mortgages, did they not?
Or did I miss something along the way?
If a lender decided to lend someone money for 10 times their household income, they are the biggest fools ever (and should rightfully pay the price). I personally didn't like the idea of originally getting a mortgage that was 2.5 times my household income, even though I could have been approved for up to 4 times my income at the time.
__________________
Primary title "chief moron"
myself is offline   Reply With Quote
Old 03-19-2008, 08:57 AM   #8
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
Quote:
Originally Posted by ziggy29 View Post
I agree. It reminds me quite a lot of the property/casualty insurance industry after Katrina. Suddenly the strong players had more pricing power than ever, so it seemed, and were cautious about were writing new business -- demanding a strong "risk premium" to write it. And when nature settled down and no repeats of a supercat event occurred domestically in 2006 or 2007, they made money hand over fist.

And they still are. They still not writing homeowners' insurance policies down here (to the best of my knowledge, according to the news media). This has hampered the real estate market, since buyers need to buy the state-sponsored insurance at twice the price. I couldn't even get umbrella insurance last month due to Katrina (according to my Allstate agent), even though I have credit scores in the 800's and have made no claims after Katrina or ever. Allstate and some other insurers also cancelled wind and hail coverage on existing policies that had been held less than 3 years. I believe they also cancelled policies for those with more than two claims in five years. Of course, they made gargantuan profits every single year, even right during and after Katrina.

Pardon me if I seem a little anti-insurance; it is difficult to live down here and speak about insurance in a totally objective way. I will be so glad to ER someplace where insurance is available and responsive.


Edited to add: I should never have started talking about the situation in New Orleans. Normally I don't, but I goofed. Call it PTSD if you want, or just a weak personality, but it is much too difficult for me to discuss and I am just not up to it. Sorry.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is online now   Reply With Quote
Old 03-19-2008, 09:03 AM   #9
Full time employment: Posting here.
Lusitan's Avatar
 
Join Date: Jan 2006
Location: Boston
Posts: 620
I never really thought of an 80/10 as "getting around" PMI. The interest rate on the 10% loan is higher, to reflect the higher risk to the lender, so when I was running numbers things looked pretty much like a wash, especially with PMI being deductible.

But I still like the idea of an 80/10 because it's more of a sure thing: you know if you focus on paying off the 10% loan, you'll eliminate that extra risk cost at some point, and without any hassle of having the home reappraised.

Anyway, I don't think they're a thing of the past, at least for borrowers with good credit.
Lusitan is offline   Reply With Quote
Old 03-19-2008, 09:06 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
Quote:
Originally Posted by Lusitan View Post
Anyway, I don't think they're a thing of the past, at least for borrowers with good credit.
I think it also depends on the market. I suspect that lending anything above 80% LTV is very dicey in areas where the bubble is deflating. But in areas where prices rose more slowly and are still relatively stable, I would think someone with top-tier credit could pull it off somewhere. Last time I checked, here in central Texas, prices were still flat to slightly rising. We never participated in the bubble, and here in the Hill Country we remain a very popular retirement destination for people fleeing the Houston and DFW areas.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 03-19-2008, 09:31 AM   #11
Full time employment: Posting here.
Lusitan's Avatar
 
Join Date: Jan 2006
Location: Boston
Posts: 620
Quote:
Originally Posted by ziggy29 View Post
But in areas where prices rose more slowly and are still relatively stable, I would think someone with top-tier credit could pull it off somewhere.
Definitely. I'm in the process of looking into it myself and there has been no problem so far. I guess at times like these it pays to have good credit history.
Lusitan is offline   Reply With Quote
Old 03-19-2008, 11:48 AM   #12
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 328
Quote:
Originally Posted by Want2retire View Post
And they still are. They still not writing homeowners' insurance policies down here (to the best of my knowledge, according to the news media). This has hampered the real estate market, since buyers need to buy the state-sponsored insurance at twice the price. I couldn't even get umbrella insurance last month due to Katrina (according to my Allstate agent), even though I have credit scores in the 800's and have made no claims after Katrina or ever. Allstate and some other insurers also cancelled wind and hail coverage on existing policies that had been held less than 3 years. I believe they also cancelled policies for those with more than two claims in five years. Of course, they made gargantuan profits every single year, even right during and after Katrina.

Pardon me if I seem a little anti-insurance; it is difficult to live down here and speak about insurance in a totally objective way. I will be so glad to ER someplace where insurance is available and responsive.
Preface: I agree with a lot of Want2Retire's thoughts on this board, and appreciate learning from someone who probably has more knowledge than I do.

2 questions (not intended to be inflamatory in any way, but food for thought on the subject):
1) Is Allstate a publicly traded company?
2) Is it a publicly traded companies objective to maximize it's profits for both it's shareholders and it's employees?

My personal thoughts if I were an insurer:
1) If I were publicly traded and trying to maximize profits for investors, I would most assuredly raise rates so that the company would increase profts.
2) Likewise, if areas were underperforming because a given area was "Hurricane alley", or "located below the water level in the area", I would either high-tail it out of there, or raise rates to make it perform better.
__________________
Primary title "chief moron"
myself is offline   Reply With Quote
Old 03-19-2008, 12:05 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Quote:
Originally Posted by myself View Post
Preface: I agree with a lot of Want2Retire's thoughts on this board, and appreciate learning from someone who probably has more knowledge than I do.

2 questions (not intended to be inflamatory in any way, but food for thought on the subject):
1) Is Allstate a publicly traded company?
2) Is it a publicly traded companies objective to maximize it's profits for both it's shareholders and it's employees?

My personal thoughts if I were an insurer:
1) If I were publicly traded and trying to maximize profits for investors, I would most assuredly raise rates so that the company would increase profts.
2) Likewise, if areas were underperforming because a given area was "Hurricane alley", or "located below the water level in the area", I would either high-tail it out of there, or raise rates to make it perform better.
Acttually, the primary insurers like Allstate have generally not made money off the rise in homeowners insurance premiums. Actually, it has been costly and a ton of aggravation for them (imagine arguing with Florida's insurance commissioner so much that they suspend your license to write insurance in the state).

The real beneficiaries of the price spike have been the catatstrophe reinsurers, who should much of the risk. Considering how they were decimated by the 2005 hurricanes, I don't think it is unreasonable to ofer them a significant return for the considerable risk they take.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 03-19-2008, 12:51 PM   #14
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,474
I'm sorry. This is just too sore of a topic for me to engage in and remain normal, human, and civil. I should never have started talking about it! I can't do this. My sincere apologies.

Continue as before....
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is online now   Reply With Quote
Old 03-19-2008, 03:27 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,733
Hun you are allowed an insurance rant, I am sure dealing with insurance companies after Katrina was almost as bad as the storm. I avoid insurance whenever possible.

Although, I am partially to one insurance company Berkshire, my share of Katrina's losses was several thousand, although I did recover a lot of that when Berkshire Reinsurance jacked up the rates the next few years.
clifp is offline   Reply With Quote
Old 03-19-2008, 04:17 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Dec 2004
Posts: 1,798
If W2R won't answer I will. Most insurance companies still won't write new policies, because, you guessed it Katrina. What they fail to mention is they don't protect against wind or hail in Mississippi, so even if another Katrina hit they would lose exactly nothing, so there is no risk to them. The closest analogy I can come up with is you are not able to obtain car insurance because you have cancer. The insurance companies won't cover you because you might have a loss they don't cover. It makes no sense, and really irks me. The few companies that are still writing policies are charging an arm and a leg, blaming Katrina, and still aren't providing coverage for wind or hail. They make it seem like they haven't made any money at all in the last 30 some odd years since hurricane Camille.
__________________
You don't want to work. You want to live like a king, but the big bad world don't owe you a thing. Get over it--The Eagles
lets-retire is offline   Reply With Quote
Old 03-20-2008, 09:10 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,558
Quite a catch-22 - frankly, insurance is such a racket at times - the sad part is that many times they've lobbied the government to make it 'mandatory' so they have a captive 'audience' but then they play games with the terms. I always try to remember insurance is about paying someone else to assume your risk -that's why many rich people 'self-insure.' Insurance companies also pay actuaries quite a bit of money to ensure they price the policies right.

I remember sitting in a meeting about how to maintain imaging tubes - these things are expensive - $100K's to replace and are considered catastophic failures. We had a company who wanted us to give them a yearly fee to maintain the tube and with that yearly fee, they would also take care of any catastophic costs - although we were still responsible for preventive maintenance - essentially they wanted our money to invest and then yup, they paid another insurance company for a policy to cover that catastrophic loss - so they were shifting the 'risk' to another insurance company. I learned a lot that day about how it all works. I wondered how the guy at the bottom of this catastrophic pile would handle it all - as I thought that first catastrophic insurance company probably had their own policy for catastrophic loss - 'pass the buck' or hot potato.....
__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.”
deserat is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
PMI and other insurers twaddle Active Investing, Market Strategies & Alternative Assets 9 11-09-2007 01:49 PM
Speaking of cars... bbbamI Other topics 10 08-20-2007 01:08 PM
speaking of liability protection lazygood4nothinbum FIRE and Money 30 02-21-2007 01:06 PM
speaking of insurance... Khan FIRE and Money 1 09-17-2006 05:40 PM

» Quick Links

 
All times are GMT -6. The time now is 01:04 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.