Why didn't the required private mortgage insurance prevent the current crisis?

Question

Why didn't the required private mortgage insurance prevent the current crisis?

Answer 1

I wish my advice could be helpful.And here is a good resource.Check it up.

http://insurance.freetipz.info/insurance...

Answer 2

Well, how could it possibly cover bad loans?

I think you maybe don't understand what Private Mortgage Insurance covers.   It does NOT make payments for the owner!  

What it actually does, is AFTER the homeowner defaults, the bank forecloses on the house.  AFTER the foreclosure, the bank sells the house at auction.  AFTER the sale, the PMI pays the bank, the difference between the loan balance, and what the house sold for - covering the difference.  THEN, that amount the PMI paid out, gets sold to a collection agency, and the homeowner is STILL legally liable for it!~

PMI ONLY EVER COVERS THE BANK.  And it doesn't prevent foreclosures.

Now, for the second part of your question.  About 80% of the foreclosed loans in this "crisis" didn't have any PMI.  Why not?  Well, you get PMI when you have a loan for more than 80% of the value of the house.  You can "avoid" PMI by taking out TWO Loans when you buy the house - one for 80%, and a second, much higher interest rate loan, for up to 20% or even more.  That means, you have NO equity in your house.  This was done by people wanting to buy more house than they could afford.  So, the natural consequence of overspending is . . .not being able to afford the house.  

The people buying the loans were ignorant, for the most part, about how this could easily blow up in their faces.  I do blame them, in some part, because they CHOSE, for the most part, to be ignorant.  They didn't WANT to listen, know, whatever.  They had house fever, and wanted that great big house, regardless.  Well, this is a good life lesson.

But those lenders and mortgage brokers really set these people up for the fall.   They thought they'd make a lot of money by making higher risk loans, at higher interest, at the cost of these people who didn't want to know any better.  This was a bad business decision.  I do NOT believe the government should be bailing out companies who are losing money, because of bad business strategy.  When it was working out for years, did the companies offer part of the revenues as gifts to the government?  Certainly not.

Basic laws of investment state, with greater risks, come greater returns.  And greater losses.  It's STUPID to reward the risktakers by bailing them out of their losses.  Then there's no incentive to be SMART about their businesses.