PMI Companies And The Foreclosure Crisis: Where Are They?
Posted on Tuesday, August 12th, 2008 at 10:58 pm.Some of you may be wondering what happened to the PMI companies with the recent market downturn. After all, aren't some buyers paying PMI to insure the lender in the event of a default? Where are they now? Why are so many lenders going out of business if homeowners have already paid for a policy covering such events.Let's explain why:PMI (Private Mortgage Insurance) only covers up to 20% of the purchase price of the home. This means that if a home was purchased for $500,000, then the PMI policy value is $100,000. Once the homeowner defaults and goes into foreclosure, the bank files a claim for the policy value and is left with the remaining debt to sell in a short sale or REO.With recent foreclosures due to millions of homeowners defaulting on loans, PMI companies have black balled the following states: California, Nevada Arizona Florida, Ohio and Michigan. This would make sense since they are among the worst hit foreclosure states. As a result, many PMI companies are pulling out of the market as in some states, more foreclosures were filed than homes sold, which isn't a good indicator with regards to market profitability.This has made it difficult to finance a home where the contract does not include a 20% downpayment by the borrower. Again, this is due to so many PMI companies pulling isntout of the market and/or charging higher PMI premiums. However, an option is to obtain a FHA loan where only 3% down is required. This way you can still put down a lower downpayment and have the backing of a FHA loan.In the event of a foreclosure, the loan is backed by the government. However, with the recent wave of foreclosures, Fannie Mae and Freddie Mac are rumored to be in trouble themselves. But never fear, Uncle Sam will save the day. This means for consumers, market stabilization due to increased consumer confidence in the backbone of the mortgage industry.
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