Subprimes Didn't Have PMI?
Question from a CD reader:
I am hoping you might be able to answer questions for me that have been bothering me since the sub prime lending crisis began last year. Why hasn't private mortgage insurance (PMI) kicked in to protect lenders whose loans have defaulted or are in foreclosure?
Answer: Subprime lenders don’t require private mortgage insurance (PMI), unlike traditional lenders, at least some subprime lenders, according to this website and this one.
4 Comments:
Borrowers avoided PMI through piggybacking.
Piggyback plans were developed as a creative response to soaring home prices and borrowers' desires to stretch their down-payment cash while avoiding private mortgage insurance premiums (PMI).
PMI might not payoff all claims in any event.
S&P downgrades mortgage insurers.
Borrowers avoided PMI through piggybacking.
If PMI isn't required of subprime borrowers they don't need to avoid it using any method including piggybacking.
I believe you are referring to a prime lending strategy to avoid PMI.
I audit these loan files for the PMI companies, and I can tell you that some of the loans are covered by private mortgage insurance. In the case of piggyback loans (80%LTV 100%TotalLTV), the second mortgage is often covered by PMI. Now, the PMI might be added after the loan closed as a credit enhancement, so the borrower is not paying the premiums.
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