It doesn't play much of a role at all, in my opinion. The Sub Prime situation by and large involved high loan to value financing vehicles, whether it be ';interest only';, 80/20 combo loans, stated, or what have you. In the 80/20 combo situation, there was no mortgage insurance involved. PMI is involved in the pre-construction fiasco, but that's another story in itself. In fact during the 80/20 craze, the PMI folks lobbied Congress to get a deductibilty situation set up ( consult your tax advisor) so they could get back in the game.What role does (PMI) Private mortgage insurance play in the Sub Prime Mortgage disaster?
PMI did protect lenders from loans that defaulted, but the problem is most subprime loan companies sold those loans off to investors after they originated the loans.
The ';bust'; happened when so many of these loans defaulted, PMI companies refused to insure anymore of the loans that fell below a certain credit criteria....and therefore the subprime mortgage companies could no longer originate loans to sell.
Alot of homeowners that had subprime loans didn't even know they were paying PMI..because it was built into the loan and not paid separately.
they do but rember it is like insurance, a smallpercentage is kept a ide to offset any forclosures, but when over 30% of written loans are subprime, or more than what the property is worth and some unforseen action happens:
Lost of income
ARM Mortgages
etc....
this causes our economy to go into a tailspin, but if you keep your mortgage between 25-28% of income, setup auto draft and pay 10 % extra month ly (principle). You can get below the 80% to value needed for PMI and ask for it to be removed.
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