Mortgage insurance is yet another scam people are FORCED to buy, yet get nothing from. Unless your one of those who makes a lot of claims till your premiums end up higher than your mortgage payments, LoL!
Anyways, risk is risk, so why can’t the risk begin and end with the mortgage company? If an un-insured house burns down, big deal. In the grands scheme of things, that doesn’t impact the mortgage issuer very much. I thought that “risk” was built in to the amount of interest you pay.
Also, you can refi when you're better than 80% LTV and get rid of the PMI, but then you're paying some more loan fees to refi.
“Mortgage insurance is yet another scam people are FORCED to buy, yet get nothing from.”
What you got was the loan with less than 20% Down. If you had the 20% down payment, no MI was required. So, either get your rich uncle to cosign your loan (accepting full responsibility for the debt if you default), or hire the MI to take his place, or come up with the 20% down payment and stop whining.
In the middle and late period of the recent mania, lenders were able to flim-flam Fannie and Freddie into buying “20% down, no MI” loans originated simultaneously with a subordinate mortgage loan for up to the entire “down payment”, allowing the borrower into the house with thin to zero equity. The subordinate loans in these “Piggy Back” loan transactions were securitized and sold to gullible investors (perhaps your life insurance or pension fund investment managers plunged into them, or your bond mutual fund).
http://www.reuters.com/article/2007/03/02/us-usa-economy-housing-idUSN0260840120070302
http://www.thewriterscoin.com/2010/02/17/buying-a-home-pmi-vs-piggyback-loan/
Those investments in uninsured loans where the borrowers started out with little to no equity have lost the investors a lot of money. The risk could be disguised with a bit of chicanery but it couldn’t be eliminated. Add in a large number of homes purchased with loans to borrowers who didn’t have the means to keep up the payments and you have over a decade of substantial overbuilding stimulated by the availability of easy money, and an eventual plunge in real estate values when the music stopped and many of those financially strapped borrowers stopped making their payments. Thus, even prudent borrowers in neighborhoods where they were surrounded with reckless borrowers or fraud artists who lied their way into a loan they couldn’t repay, have been suffering the consequences of careless lending.
Since 2007, mortgage insurers have paid out over $22 billion in claims, and raised more capital to support insurance on many additional new loans. Now that FHA has been required to raise its rates to levels that will support future claim payments, and tighten its underwriting standards somewhat, private MI has become more competitive. Further declines in home prices appear likely for a while, and several more MI’s may be forced into runoff eventually, however lenders who issue new loans non-fraudulently, and don’t misrepresent their risk characteristics, can insure them with considerable confidence that claims on default of such loans will be paid in full.
http://www.housingwire.com/2011/03/04/report-details-hud-failures-to-protect-fha-insurance-fund-from-bad-loans
http://www.housingwire.com/2011/02/15/fha-to-increase-mortgage-insurance-premiums-a-quarter-of-a-point
http://www.housingwire.com/tag/mortgage-insurance
Incidentally, back in 2006, and even earlier, the private MI’s were warning regulators that they were missing the boat on their primary responsibility of safety and soundness of their regulated institutions. Did they listen? In a way: “Your comments are noted. We think the banks know what they’re doing. Thanks for the input. Don’t let the door hit your butt on the way out.”
Seot 20, 2006
http://www.privatemi.com/news/testimony/20060920.cfm
March 10, 2000
http://www.fhfa.gov/webfiles/1996/29RBC_NPR2_MICA.pdf
http://www.fhfa.gov/webfiles/1993/26RBC_NPR2_GE_Capital_Mortgage.pdf
September 29, 2010 (my favorite, a kind of “We Told You So” recital):
http://financialservices.house.gov/Media/file/hearings/111/Sinks%20Testimony%207-29-10%20w%20charts.pdf