Mortgage Insurers Start Re-Digging Grave

Private mortgage insurance, often referred to as PMI, can be one of the most confusing aspects of financing a home. The buyer is required to pay PMI if they have less than a 20 percent down payment, but if they default on the mortgage, it is the bank that files a claim with the insurer, and you get nothing for all those fees you paid.

PMI used to be non-deductible, so lenders created 80/20 piggyback loans to help buyers avoid paying PMI, which helped if not caused part of the foreclosure and credit crisis in which we are still in.

Most borrowers who had less than 20 percent to put down have been using FHA loans for the past two years, which allows you to put down just 3.5 percent. And if you have 20 percent to put down, then you don't need PMI. So the range of mortgages where
PMI is relevant is strictly between 3.5 percent down and 20 percent down.

Now, the private mortgage insurers are trying to re-take some of their turf, according to the Wall Street Journal, in a sign that could be viewed as a vote of confidence for the housing market, or as the reinflation of the bubble-driven mentality that got us here.