Mortgage insurance

User Forum Topic
Submitted by wbk on August 25, 2008 - 7:32am

Hi everybody,

Long time lurker, occasional poster. My wife and I sat out the housing market through the bubble, and are waiting for something close to the bottom before we buy. Since we've never owned, some things are still a little mysterious to us, and I was hoping to pick the collective Piggington brain about the role of mortgage insurance in the housing market.

At some point (probably here), I read that all of the attempts to encourage banks to re-finance rather than foreclose were not going to be effective because most people put less than 20% down, and had mortgage insurance. If the banks could get their money back by foreclosing and putting in a claim with the PMI company, they don't have much incentive to refinance. My questions are, is this correct? And, if this is true, who are the companies that do mortgage insurance, and aren't they in danger of failing too (and, if so, what then)?

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As far as I know, most houses
Submitted by Eugene on August 25, 2008 - 10:00am.

As far as I know, most houses bought at the top of the bubble do NOT have mortgage insurance. Up until 2007 it was not tax deductible and it was preferable to get a second mortgage to cover the down payment, a so-called 80/20 scheme.

Nevertheless, mortgage insurance companies are in much pain. Two big companies are PMI and MGIC. If you bought 100 dollars worth of stock of either of these companies in early 2007, you'd have less than 10 today.