So Whatever Happened To P.M.I???
Did PMI have PMS? I actually had a dream last night about P.M.I. — that is, private mortgage insurance. (The trillion dollar bail-out is so mind-boggling I am dreaming about it.) I recall when we bought our first house we had to buy P.M.I. which was a sort of default insurance that would pay off the mortgage loan in case we didn’t. The bigger our equity has become over the years, the less we have had to pay.
But what about people who bought with zero down? Didn’t they have to pay P.M.I? Or were they, instead, encouraged to get second mortgages so that instead of having an insurance policy on default, they would screw over two banks instead of one?
May I make a modest suggestion: whoever initiated the dumping of P.M.I. helped make a significant contribution to the mortgage crisis and current financial meltdown. Agree?
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I am certainly not a mortgage genius, but when we purchased our first house in 2006 and the opportunity to save $100 or so each month presented itself, we took the second mortgage in lieu of the PMI. We had squeaky clean credit and enough cash to put more than 20% down and avoid the PMI altogether, but we wanted the cash on hand to invest and pay for remodeling, etc, so we financed 95% between 2 loans. Made sense (still does to me).
Was it a bad idea to allow first time buyers all over the nation without a dime in the bank to take 2 loans on an over-priced house with gimmicky rates and not insure it? Yes. Did it make sense for them to offer it to someone with good credit and cash and a decent head on their shoulders like me? Yes.
Is there a program out there that can tell the difference between the two? Apparently not.
And I’m in insurance, so I fully appreciate that everything (seriously, everything) is insurable and should be insured.
I don’t agree, the first lienholder is still protected by the 20% buffer if they ever foreclose. The second lienholder is protected by the larger interest rate and shorter term of the loan. In most markets, even in a default the first lienholder would see most of their money in the case of a default. Where property values have dropped 40% (CA, FL, LVNV) is where you see the problems.
Subprime loans were the biggest culprit. They allowed 100% financing with adjusting rates after 2 years and no pmi because they weren’t fannie/freddie loans. Has anyone ever located the genius who came up with this loan?