Private Mortgage Insurance (PMI) is insurance that protects your lender against non-payment should you default on your loan. It's important to understand that the primary and only real purpose for mortgage insurance is to protect your lender—not you. As the buyer of this coverage, you're paying the premiums, so that your lender is protected. PMI is often required by lenders due to the higher level of default risk that's associated with low down payment loans. Consequently, it's sole and only benefit to you is a lower down payment mortgage.
It is a required part of loaning to those who have no down payment, and it was a reasonable plan. In the past a typical down payment was between 10-20% of the loan. If one bought insurance to cover that same amount, then lenders would be protected at the same level.
What we're not hearing is too much conversation from these insurance companies. Where are they? Are they not paying the lenders the required default money? That would be the money the banks would use to reposition/resell these homes on the market.
Many subprime loans don't require PMI. It is my understanding that F&F bought some of these toxic loans..
PMI is generally required if the loan is for 80% or more of the VALUE of the house. However, back in 2005 and 2006 values were going up so quickly that even on no-money-down mortgages the PMI came off within a year.
My guess is that a lot of mortgage companies failed to put PMI back on when values dropped.