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Started By
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PMI: Someone explain this to me again?
Posted on 3/31/09 at 8:09 am
Posted on 3/31/09 at 8:09 am
I couldn't find this exact discussion in a search, but I'm sure its been discussed before...
Why are we having so many foreclosures if we have so much PMI out there?
Why are we having so many foreclosures if we have so much PMI out there?
Posted on 3/31/09 at 8:35 am to coloradoBengal
I don't know and sad to say I hadn't thought about it until a caller on Rush asked him about it ... he was speechless ... said he'd not even thought about that but that it was a VERY good question!
Wish I knew the answer ...
Wish I knew the answer ...
Posted on 3/31/09 at 8:41 am to coloradoBengal
PMI is insurance for the lender, not the borrower (even though the borrower directly pays for it, the beneficiary is the lender).
With that being said, your question was why do we have foreclosures if we have PMI. PMI protects the lender if they can't recoup their assets (the amount borrowed) if the borrower defaults. The process of recouping their asset (the house) is to foreclose on it.
So if the borrower quits paying, the bank forecloses, THEN if they don't recover their loss, they will make a claim with the Private Mortgage Insurer to cover their loss.
As you can see, PMI doesn't stop a foreclosure since the PMI claim takes place AFTER a foreclosure if the proceeds from the sale of the home don't cover the balance of the loan.
Someone correct me if I'm wrong, but that is my understanding.
With that being said, your question was why do we have foreclosures if we have PMI. PMI protects the lender if they can't recoup their assets (the amount borrowed) if the borrower defaults. The process of recouping their asset (the house) is to foreclose on it.
So if the borrower quits paying, the bank forecloses, THEN if they don't recover their loss, they will make a claim with the Private Mortgage Insurer to cover their loss.
As you can see, PMI doesn't stop a foreclosure since the PMI claim takes place AFTER a foreclosure if the proceeds from the sale of the home don't cover the balance of the loan.
Someone correct me if I'm wrong, but that is my understanding.
Posted on 3/31/09 at 8:52 am to MikeBRLA
quote:
As you can see, PMI doesn't stop a foreclosure since the PMI claim takes place AFTER a foreclosure if the proceeds from the sale of the home don't cover the balance of the loan.
Okay. But doesn't that mean the bank still gets its money?
Posted on 3/31/09 at 8:55 am to coloradoBengal
quote:
Okay. But doesn't that mean the bank still gets its money?
I could be wrong, but I believe there are two issues involved. First, many lenders dropped a second loan so that PMI would not be incurred. Second, many of the PMI companies are troubled financial entities.
eta: its also insurance. Which is a total scam. We will take your money, but not pay it out when we owe it.
This post was edited on 3/31/09 at 9:03 am
Posted on 3/31/09 at 8:58 am to coloradoBengal
quote:
Okay. But doesn't that mean the bank still gets its money?
As far as I know yes. But I'm not in the industry any longer, and I was never involved with that side of it.
Perhaps someone who deals with foreclosures could verify this or correct me if I'm wrong.
Posted on 3/31/09 at 9:01 am to MileHigh
most of them are going under.
and they are just covering the part over 80% is my understanding.
and they are just covering the part over 80% is my understanding.
Posted on 3/31/09 at 10:55 am to prplhze2000
also, alot of the 'bad' loans that were granted by the banks didn't require PMI.
Posted on 3/31/09 at 10:55 am to coloradoBengal
most of the PMI companies are insolvent. It's another one of those counterparty problems.
Posted on 3/31/09 at 10:57 am to Colonel Hapablap
I expect half of them to go under.
Posted on 3/31/09 at 11:09 am to prplhze2000
AIG=Biggest PMI insurer out there..
that should answer the question.
that should answer the question.
Posted on 3/31/09 at 11:13 am to bignate76
Nope. MGIC has largest market share, followed by PMI and Radian, and UG.
Posted on 3/31/09 at 12:39 pm to coloradoBengal
The way a lot of sub prime loans were structured they didn't require PMI, for example 80/20 loans.
Just more ridiculousness out of this mess.
Just more ridiculousness out of this mess.
Posted on 3/31/09 at 2:52 pm to Cash
Then there were the LPMI loans.
Posted on 3/31/09 at 3:23 pm to Colonel Hapablap
quote:
most of the PMI companies are insolvent. It's another one of those counterparty problems.
Yep. And there were only 2-3 primary PMI companies that wrote the vast majority of the insurance.
Posted on 3/31/09 at 4:14 pm to Cash
quote:
The way a lot of sub prime loans were structured they didn't require PMI, for example 80/20 loans.
Exactly, let's say that I get an appraisal at the top of the market at 600k, and then take out a loan for $480k (80%) and therefore avoid mortgage insurance. If the value today is 400k (33% drop in value) and I walk . . . the bank takes the hit for 80k.
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