PMI Better Than Expected at Protecting Taxpayers
The Urban Institute revealed on Tuesday that private mortgage insurance is even more effective than originally predicted at protecting Fannie Mae, Freddie Mac and the American taxpayers from losses.
PMI is paid by homeowners who are not able to put down at least 20 percent of the value of their home loan at the time of purchase.
“In every issue year examined, when loans experienced a credit event, private mortgage insurance did its job and kept the losses for high-LTV loans generally below the losses experienced by lower LTV loans,” bloggers Laurie Goodman and Jun Zhu explained. “In fact, in every issue year, mortgages with the highest LTV (>80) had a significantly lower loss severity than the middle LTV mortgages (60-80) and, in all but the latest three years, lower severity than mortgages with the lowest LTV (≤60). This pattern holds true even for loans originated near the peak of the market (2006), even though severity was much higher for these loans as they ultimately experienced greater home price depreciation.”
Image via flickr/woodleywonderworks