It’s no secret that during the worst periods of the financial crisis banks and mortgage lenders alike got the financial ax. Regulators closed down insolvent banks at a ferocious clip andPrivate Mortgage Insurers Rebound mortgage lenders who found themselves with a pile of loans that could not be sold were forced into bankruptcy, never to be heard from again. Yet another player in the real estate finance field felt the hit as well: private mortgage insurance companies.

What is private mortgage insurance? Commonly referred to as PMI, mortgage insurance is a policy that provides a conventional lender with financial compensation on loans with less than 20 percent down. Fannie Mae and Freddie Mac require a down payment of at least 20 percent on their loan programs but if the borrower did not have or did not want to put down the full 20 percent, the buyer could take out a private mortgage insurance policy, who would insure the loan for the difference between the buyer’s down payment and the 20 percent milestone.

For example, if a home sold for $300,000 and the borrower put 5.00 percent down, the mortgage insurer would write a policy for the difference between 20 percent down and 5.00 percent down, or in this example, a $45,000 mortgage insurance policy. Should the loan go into default, the lender would receive an approximate $45,000; the amount the lender would have received using a 20 percent down payment.

Yet as more and more homes went into foreclosure and PMI companies paid out record losses, private mortgage insurance companies were nearly completely forced out of existence. Today however, a few of the remaining players are profitable once again, according to a report on cnbc.com. (1)

This is not just good news for the housing industry but good news for the economy as a whole and another indication that home values have not only stabilized but are starting to increase in most every pocket in the country.

 

 (1) http://www.cnbc.com/id/100956144