Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.
With the growing number of mortgage defaults nationwide, mortgage insurers are finding their balance sheets under attack and their revenues in the red.
So far this year, mortgage insurers have paid out $6 billion in claims.
In response to the losses, the mortgage insurance industry is using two tactics to return to profitability — and both mean bad news for homeowners.
- Raise the minimum standards to get insurance
- Raise the annual mortgage insurance cost
This is very similar to what Fannie Mae and Freddie Mac are doing to shore up their respective balance sheets; lending to only the most credit worthy, and making sure to charge them for their commensurate risk.
Because of the higher PMI rates, it’s getting more expensive for small-downpayment home buyers to finance their homes. And that’s if they can even still get mortgage insurance.
Some mortgage insurers now require a 10 percent minimum downpayment in certain states.
So with the number of mortgage defaults expected to rise through 2009, qualifying for PMI should get more expensive and more difficult. If you plan to make a small downpayment on your next home — or plan to remortgage your current low equity home — consider moving up your timeframe.
It may not be as cheap or as easy to get financing as it is today.