I haven't read anything related to this online yet, but the recent mortgage troubles, foreclosure and short sales has me wondering: are we going to see the massive return of Private Mortgage Insurance?
For those who aren't completely familiar with it, Private Mortgage Insurance (PMI) is an insurance policy taken out by a mortgage company to protects its interests if a borrower defaults on a loan, and it is paid for BY the borrower. If a bank has to foreclose on a home, the difference between what they should have received from the borrower and the amount they can sell the house for is paid to them as a "claim". The bank comes out alright. It generally has been required for borrowers coming in with less than 20% down, until fairly recently.
In the last 5 years or so, everyone has been decrying PMI as "evil" and has been talking people with low down payments into doing "piggyback" home equity lines or loans to make up for the 20% needed (you are borrowing your down payment against the appraised value of your home).
Even this July Forbes article is talking subprime borrowers into getting into risky piggyback loans (risky now because values are stagnating or declining):
Six Reasons To Avoid Private Mortgage Insurance - Forbes.com
NOW, with the massive number of foreclosures going on and banks, mortgage companies and mortgage investors getting into deep trouble, does anyone foresee the return of heftier requirements for PMI again? I know banks liked the piggybacks and 80/10/10's because it was another revenue stream for them, whereas PMI revenue went to an insurance company. But will continued losses and defaults cause them to re-look at their strategies?
Secondly, will banks start to go back and re-assess subprime and low down payment loans, even ones in good standing, and start requiring those borrowers to enroll in PMI? Can they do that even?
(just noticed the mortgage section on C-D, I'll post this there too)
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