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So I am a new(er) home owner and have to pay Mortgage insurance on my home because we werent sitting on 44k, but wanted to buy while the market was still good. Worked out pretty well for us because we got an amazing deal on our house. That being said my understanding is that the mortgage insurance we are forced to pay, is to protect the banks in the even that we default on our home. But during the housing crisis we bailed out the banks. Does this mean the banks were bailed out, and received mortgage insurance payouts...AND STILL foreclosed on the homes?
I know not every house was covered under mortgage insurance, but I wouldnt be surprised if the bulk of them were. Doesnt this essentially mean the banks were paid out three times?
My first home was purchased with very little down and I paid PMI for about 1.5 years. As soon as the value of the house appreciated about the threshold, I refinanced and had the PMI removed.
No I don't believe banks that recieved bailouts recieved mortgage insurance payouts.
The subprime surge occurred in 2002 according to Alan Greenspans latest book. Primary loans at 80 % were made and the subprime mortgages up to 100% enabled homebuyer to qualify for loans with little background checks. This started to collapse in 2006 which culminated in the 08 bottom and millions of layoffs due to misguided political policy.
A lot of the PMI companies settled with the lenders for a fraction due to the huge amounts involved. However, bad underwriting also gave an out to the PMI companies if they could prove that the lender lied.
If you got a conventional loan, when your equity exceeds 20%, you can get rid of the PMI. If you got a FHA loan, you would have to refinance to a conventional loan, as the FHA PMI charge runs the life of the loan.
Finally, you are paying the insurance to the PMI companies, not the bank.
Banks did not get in trouble bc of defaulted home loans (at least not the banks that received the headline 'bail outs).
All these mortgages, commercial, residential, and other assets were structured and packaged into securities on banks balance sheets. They bought 'insurance' on these assets from AIG and other companies called mono lines, which traditionally only insured municipal bonds. Bc the securities were thought to be very high quality, the leverage they wrote to proved to be fatal. The banks did not receive the full payouts from this insurance, rather taking billions of dollars in provisions.
credit default swaps, repeal of glass-steagal/ provisions in banking act 1933, phoney investment ratings. A few things lined up including what the previous post said. Its actually a good lesson to understand sme of the complexity of what happened. I am no financial guy but I found the research quite interesting even though I dnt have a full grasp over the details.
The natural aversion to risk gave way to greed by shifting the risk elswhere. The incentive was then to write up as many mortgages as possible to be packaged and resold as securities. Securities that remained highly rated even though they were comprised of mostly high risk sub prime mortgages. The more they created the more they sold... easy money. They did not care if the individuals being issued mortgages were overleveraging their ability to pay the mortgage. Easy loans and credit means artificially inflating the consumers ability to purchase. Artificial increase in consumer power also means a rise in prices.... in this case housing prices which leads to over valued properties.
The part I am still grasping is the shifting of risk. The effective repeal of the glass steagall act removed the seperation of banking and securities of which credit defalt swaps which were credited to mitigate the risk were treated as securities. ??
anyways... Again not a financial guy so feel free to correct me.
Oh yes..l. After reading about all this on my own. I came away thinking....
The glass steagall act came to be (and the banking act of 1933) as a reaction to the 1929 marketcrash. It was a safety net to prevent it from happening again. Somehow those that supposedly represent the interests of this nation believed that we could remove that safety net, make more money, intrust the banking system, and continue on safely. That somehow we were smarter and better than our 1920s, 1930s counterparts? Great egos at work.....
At least that was my final laymans take on the situation. So whose names were on the legistlature that rendered those provisions to be effectively repealed? I bet they are doing better than most working americans these days
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