Where Was The PMI: The Answer I’ve Been Seeking
I finally found out why private mortgage insurance didn’t help with the mass of defaulting loans, thanks to this comprehensive article from Housingwire.com, which is kind of bullish on the HASP. GSE (government sponsored enterprises, like the Fannies and Freddie) charters prohibit financing for more than 80% of property value. If the loan to value ratio is higher than that, the loan must have third party credit support.
“Historically, this credit support has been in the form of PMI, but in the bubble-building years, borrowers found piggy-back second mortgages less costly (because they were securitized and off-loaded into CDOs and yield-hungry funds). As much as the GSEs have tightened their credit standards, PMI underwriting is even tougher, and their insurance premiums have gone up to reflect the realities of mortgage risk.”
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