Friday, November 23, 2007

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?

You can read more at Mortgage News Daily.

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