PMI: Someone explain this to me again?

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.

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.

most of them are going under.

and they are just covering the part over 80% is my understanding.

I expect half of them to go under.

Nope. MGIC has largest market share, followed by PMI and Radian, and UG.

Then there were the LPMI loans.

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.