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One of the fellas at work mentioned that the folks who got in over their head with a mortgage they could not afford were likely not to have the 20% down payment required to forgo the PMI insurance on a home mortgage. And since these folks likely represent the majority of default borrowers, why are the mortgage companies in trouble instead of the PMI companies?

I arrived at this particular thread following a couple of other FR links, so I'm late getting to the dance. I saw your question and noticed there hadn't been any replies so having been in and around the mortgage and PMI industries once upon a time I thought I'd take a crack at an answer for you:

For starters, one possible misconception, mortgage companies RARELY have funds of their own to lend. They, by charter, are not deposit based institutions so they loan other people's money, in a roundabout way. The loans they make are usually packaged in "pools" in increments of, say, $1M and sold to investors. Far and away the largest purchasers, or investors of these originations are Fannie and Freddie. Since they are not deposit based institutions either, THEY in turn after a fashion, lay hands on these mortgage backed securties(MBS's) to make them acceptable for sale to the next level of investor. THAT'S where the bucks are; banks, savings banks, investment banks, pension funds, insurance companies, etc...

Back to the mortgage company. If they are in trouble it's *generally not because the loans they originated are going bad; they don't really own the loans. Where they acquire the largest chunk of their income is from fees(points) generated from MAKING loans. Aside from this MOST mortgage companies will have a small stream of revenue that comes from "servicing" loans, that is, collecting and applying payments, handling escrow accounts and the like. Bottom line; they don't make loans, the have no revenue.

I haven't really followed the mortgage business that closely over the last 15 years or so but recently I caught a blurb on the news saying the mortgage refinance business was booming. Makes sense given the rates available on loans right now. I suspect one would have to be gold plated to get one of those right about now though. Sub-prime borrowers need not apply. So, I would hazard a guess the mortgage companies shouldn't be doing all that badly for the most part.

PMI companies..... My guess would be that most of them would be suffering with a case of default shock. I pulled up one in Market Watch that I'm familiar with to see how they were doing. Not good. At one time MGIC was the largest, best managed, best capitalized company in the business, and now, see for yourself: MARKET WATCH

I can't say for sure the rest of the PMI companies are in trouble since I didn't check any others, but it would be a safe bet. One item of note, there may a link from these companies to say an AIG for example. In an effort to share the risk, some/most PMI companies went to re-insurers. It follows that AIG would have likely been one of the largest re-insurers of PMI backed loans.

Hope that shed some light.