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Mortgage Insurance: Private Mortgage Insurance
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Private Mortgage Insurance (PMI) is an insurance policy that protects the lender in the event that the borrower defaults on the loan. Lenders generally require PMI on loans where the loan to value ratio exceeds 80%, or, in other words, the buyer's downpayment on the loan is less that 20%.
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Private Mortgage Insurance, or PMI, is insurance required by the bank or lender providing financing if the LTV, or loan-to-value is greater than 80%. PMI is important because it protects the bank or lender in the case that a borrower with a very high LTV defaults on their mortgage. And it is said to benefit the borrower by allowing them to finance a property with very little down in one single loan.
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According to the Mortgage Bankers Association of America (MBAA), private mortgage insurance is usually about one-half of one percent of the loan amount. So let's say you're buying a house that costs $150,000 and your down payment is $7,500 (or 5% of $150,000). Your loan amount then, is $142,500. The amount of annual PMI you'd have to pay is equals $712.50. That comes to nearly another $60 a month to have to pay along with your mortgage payment. For many people, this can be pretty costly.
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This paper describes the structure of mortgage insurance in the United States from the perspective of the potential usefulness of such insurance in the Russian Federation. The first part provides a general discussion covering key aspects of such insurance. In this part, it is assumed that the issuer of the mortgage insurance is a private entity. The second part of the paper describes one default insurance product of the Federal Housing Administration, a U.S. government agency that issues default insurance policies to banks for certain classes of borrowers and homes being purchased. The program is the Federal Housing Administration's primary program for insuring mortgage loans given for the purchase of individual housing units for owner occupancy. The final section outlines an idea for how to proceed with the development of such insurance in the Russian Federation.
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Mortgage Guaranty Insurance Corporation, the principal subsidiary of MGIC Investment Corporation (http://www.mgic.com/), is the nation's leading provider of private mortgage insurance coverage with $197.0 billion primary insurance in force covering 1.3 million mortgages as of September 30, 2007. MGIC serves 5,000 lenders with locations across the country and in Puerto Rico, Guam and Australia, helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.
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Mortgage insurance is insurance that homebuyers are generally required to purchase if their down payment amount is too low. It usually is required for owner occupied family dwellings if the down payment is 20 percent or less of the purchase price of the home and land. Private mortgage insurance helps to protect the lender if the borrower cannot repay the loan.
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Private Mortgage Insurance