Quote Originally Posted by MarkCO View Post
PMI has always been a scam of epic proportions. The house is the collateral. If the risk is too high, the lender should not loan.
My grandparents actually got a refund of PMI premiums (late 60s I think). I guess very few of the Greatest Generation defaulted on their mortgages leaving a surplus in the insurance pool.

I don't think that happens anymore.

But yes, total scam.


Quote Originally Posted by skoodge View Post
The reason for PMI, and it's cutoff at 80% LTV on conventional loans, is that when the borrower defaults on the loan and the lender forecloses on the house, the lender then has to resell the house to get their money back. But, foreclosure sales usually only sell for 80% of their value; so the difference between the sale price and the defaulted loan amount is paid for by the PMI company. Essentially youre paying insurance to make sure the lender doesn't lose money in case you default on the loan. Typical insurance "scam", your money protects someone else. FHA loans are the same concept, but you pay PMI for the life of the loan. This is because FHA is usually used for borrowers with lower credit, etc.

[snip]
Yes, I know the stated reasons for PMI.

But these same banks will write unsecured credit card debt into the tens of thousands risking a lot of money that may never get back. So the question is not if the bank can completely recover on defaulted debt, but how much they get from debt consumers for the privilege of loaning our own money (0% Fed rate) back to us. And after 2007/08, turns out we back all those loans anyway (not just Freddie/Fannie).

If PMI were actually an insurance product, the homeowner would own the policy and be protected from a default/short sale. But banks still ding borrowers' credit for shorts and 1099 the difference, right (reverted back for TY2015)? So the bank is forcing the consumer to purchase an insurance product that doesn't mitigate a default for the borrower.

And if PMI does pay a claim to the banks, why are the banks issuing 1099s to deduct the losses? (I've always wondered that) They shouldn't be able to deduct an insured/paid loss, but the insurance company can. So are they acting as both?

It would be more honest of the banks to just add a few basis pts to a loan with > 80% LTV. Then it would be completely tax deductible for the borrower (up to the limits on mortgage interest).