Monday, December 08, 2008

CSI: Real estate and private mortgage insurance

For many years, buyers who put less than 20% down on a home have had to pay private mortgage insurance. This is a percentage fee, tacked on to a monthly mortgage, that protects the lender against default on the loan. The loans are insured. And "pmi" isn't inexpensive for the borrower.
I'm sure this has occurred to many of you before this, but: if there was so much insurance on mortgage loans, why are lenders in such trouble from all the defaults? Where did this insurance money go? Who collected it? Where is it now? Why hasn't it helped stabilize the real estate market? Does anybody know?


  1. Most of these loan were created without mortgage insurance. Instead of one loan of 90%, we(lenders) would do two loans to avoid the mortgage insurance. So, in essence, the 2nd lien holder was assuming that risk. And now all of those 2nd lien holders are out of business.

  2. All the insurance money got sucked into a black hole. That's my best guess. :)

  3. Most of these loans were created without mortgage insurance. The way we (lenders) avoided the dreaded Private Mortgage Insurance was to create two loans. So the 2nd lien holder was taking on the risk and is now screwed.