Foreclosures and PMI

During the time I was searching for a home, I learned that if you do not have 20% to put down, then you must pay PMI (Private mortgage insurance) which protects the lender if you default. Why then are so many institutions feeling the squeeze from foreclosures if the bad mortgages required PMI?

Because: a) PMI only impacts first mortgages not HELOC’s, 2nd’s, etc. b) Not all mortgages required PMI if you don’t put 20% down c) (Not sure about this one) What’s happened to PMI insurers?

JoeyDVivre Wrote: ------------------------------------------------------- > c) (Not sure about this one) What’s happened to > PMI insurers? Was AIG a PMI insurer as well? We know what happened to them in that case.

My bank did PMI through AIG. On the news of AIG’s $85b bailout, they sent us a letter telling us not to send them any mortgages requiring PMI because they were no longer issuing new PMI policies. PMI insurers in general didn’t get hit as bad as the i-banks that bought all of the crappy MBS’s and CDS’s since they didn’t use crazy leverage, and PMI is usually reinsured pretty heavily. AIG’s trouble is due to CDS’s not PMI. AIG and other insurers not issuing PMI isn’t really a problem, no banks want to originate loans now requiring PMI anyway.