What happened to the PMI.
I'm hoping a lender or fund manager out there can shine a little light on this for me.
In the middle of all the failed loans and compromised lender situations we're in, I can't keep these questions out of my head and I don't know why I'm not hearing anyone else talking about/addressing the issue.
If borrowers who had less than 20% equity in their properties at the time of funding - were required to purchase/carry PMI (Mortgage Insurance) to cover the higher risks associated with their potential default - then why are the investors who bought these (now failing) bundled notes getting hung out to dry when the borrowers fail to repay? (ie: Bear Stearns/ Goldman/ Lehman/ MoganStanley)
Where did the insurance money go? Who got it, what is it paying off? Why are these loans that are going into default not stabilized by the PMI? These PMI payments were substantial amounts compared to the amount they were insuring against and even if just a small portion was paid by the borrowers before defaulting, it's an insurance pool - not all borrowers paying the fees are defaulting.
I understand that the note values at the time of
default may still be more than the value of the property secured - but the PMI was tied to the value of the note and the value of the note was what was sold to the investors. So why isn't PMI the silver bullet it should have been?
A home back on the market because it's been abandoned by it's prior owner is still going to inflate inventory and drive the prices of competing property down but PMI should have protected the cash on Wall Street and it doesn't seem to have done that successfully.
I found this web site which describes far greater benefit to borrowers than I understood PMI to cover:
And it lists in the "about MICA" section a group of underwriters that cover PMI - frankly the list explains why some of these companies stock values are down so sharply. But I can't help wondering if the whole PMI "promise" was a fraud that all property owners are paying dearly for.
I am dying to get an answer to this- Where did the PMI go? - if anyone can chime in with an answer or primary resource on the subject that I can research - I would greatly appreciate it.