“Until six or eight months ago, private mortgage insurance was out of favor as people eager to get into the roaring housing market took adjustable-rate mortgages or "piggyback" loans or some other exotic form of financing. But as the market has cooled and lenders have tightened their standards, many people who want homes - especially first-time buyers and those with little money for down payments - are choosing traditional fixed-rate mortgages backed by private mortgage insurance, or PMI.”
If you’re not familiar with PMI here is a definition from NOLO:
“Insurance that reimburses a mortgage lender if the buyer defaults on the loan and the foreclosure sale price is less than the amount owed the lender (the mortgage plus the costs of the sale). A home buyer who makes less than a 20% down payment may have to purchase PMI.”
Apparently investors aren’t too keen on piggyback loans as much because of the second mortgage that is a part of the loan. Due to so many people defaulting on their loans investors are no longer jumping at these types of investments.
Interestingly I read an article in The New Yorker by James Surowiecki several weeks ago about the supposed mass defaulting of loans in the subprime market. The reports have been widely exaggerated as Surowiecki wrote, “what’s often missed in the current uproar is that while a substantial minority of subprime borrowers are struggling, almost ninety per cent are making their monthly payments and living in the houses they bought.”
It’s funny how that little piece of information slipped by the media in all the negative press regarding the subprime market.
Comment Preview