When Bad News Is Good News

PMI insurers have been worried for years as lenders were forgoing PMI insurance by writing 80/20 loans. PMI insurance is typically required by lenders when writing a loan that's within 20% of the appraised value of the home. The insurance protects the lender in case a borrower were to default on the loan. However, over the last few years, more borrowers were taking out a second loan to cover the 20%, thus forgoing the PMI insurance. But with record foreclosures, PMI insurers appear to have caught a huge break. With about 20% of new loans in 2005 & 2006 written as 80/20s, the potential for extensive payouts would have been great. Despite the silver lining, many PMI companies are still reporting year-to-date losses of over 70%. Now that we're back to seeing very few 80/20 loans, PMI companies may be seeing additional revenue. With that, of course, comes additional risks. Can an increase in PMI costs be far behind?

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