Foreclosure Report: Homeowners Losing Their Homes Because of PMI?

If you put down less than 20% on your home, you probably have private mortgage insurance (PMI).

Private mortgage insurance protects lenders in case a homeowner defaults on a loan. It can add hundreds of dollars a month to a mortgage, and can only be gotten rid of when the balance on the loan falls below the 80% level (ie, when the homeowner owes less than 80% of the balance of the loan).

PMI Causing More Foreclosures?

 Ironically, PMI could be leading to a lot more foreclosures. How? The RealtyTimes.com article, Mortgage Insurance Contributing to Foreclosure Epidemic?, explains it best, ie:

If a loan is FHA- or VA-secured or the owners are paying PMI . . ., the lender stands to lose much less from foreclosure, because the insurance will make up a portion of the difference. In other words, the lender’s motivation to work out a reasonable deal with the homeowner/borrower is undermined by mortgage insurance – often mortgage insurance that the homeowner is paying for!

Foreclosure Homes for Sale: Should PMI Be Eliminated?

This situation has caused some real estate industry insiders to question the need for private mortgage insurance. As the aforementioned article points out, it could lower the monthly mortgage payment, making homes more affordable for many — perhaps the same ones who are losing their homes today.

Oftentimes, the difference between keeping a home and losing it is only a few hundred dollars a month, or the cost of PMI. Just something to think about.

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