PMI...so whats up with that? (loan officer, foreclosed, loan, default)

[twoisbetter]

My husband & I were wondering, if so many people pay PMI, which we once did, then doesn't that cover a defaulting mortgage. Isn't that what its for? Or were they just collecting extra money for the h*** of it.

[Rick Lee]

It covers the lender for whatever percentage of the loan required PMI. It does nothing for the borrower other than help them get into a house with less than a 20% down payment. If the LTV is 95%, then PMI would cover 15% - the amount between 80% and whatever a borrower put down.

[aus10]

PMI covers the amount of the downpayment that wasn't paid.

A conventional mortgage needs 20% down.
If you only put 10% down it would cover the 10% to make the loan hit 80/20 LTV (Loan to value)

This problem now becomes larger, because the value of the home may have just taken a hit if it was overvalued at the time of purchase or refi.

[lorriem]

I heard on the news that so many people foreclosed or just returned the keys that the ins ran out.

[Rick Lee]

Originally Posted by lorriem

I heard on the news that so many people foreclosed or just returned the keys that the ins ran out.

I'd find that hard to believe. Most subprime loans did not reuqire PMI, but rather used 80/20's. And even the vast majority of subprime loans are still performing just fine. When I was retail loan officer for three years in the 90's, I never once did a loan with PMI. And I suspect even the PMI companies had their own insurance. For the rates they charge, they should be ok.