ABOUT MORTGAGE INSURANCE
Mortgage insurance protects lenders and investors against losses associated with borrower default on residential mortgage loans. All mortgages, especially those with high loan-to-value ratios, carry risk for both lenders and investors. High loan-to-value loans typically carry higher capital charges that make such lending more expensive. However, PMI's products reduce lending risk and can help lenders obtain capital relief.
By mitigating default risk, PMI facilitates the sale of mortgages in the secondary market. Insured mortgages can be easily pooled into mortgage-backed securities with reduced subordination to create transparent, liquid, and easily transferable debt instruments.
Reinsurance allows insurers to share the risk of large losses with other insurance companies. By providing reinsurance, PMI allows an insurance company to offer larger limits of protection to a policyholder than its own capital would allow.
