How Mortgage Insurance Works
All mortgages carry risk for both lenders and investors. High loan-to-value loans are particularly risky and under current or proposed regulation can attract higher regulatory capital charges. PMI reduces this lending risk and can help lenders obtain both economic and regulatory capital relief. Mortgages insured by PMI—backed by its high ratings—can also be pooled into a mortgage-backed security with reduced subordination to create a safe, liquid, and easily transferable asset.
A PMI mortgage insurance program can cover all or part of the following costs of borrower default:
- Loss of principal
- Delinquent interest
- Legal fees
- Advances made by the lender
- Limited home repairs and maintenance
- Other costs associated with foreclosing and/or selling the property
