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Non-Tech : Bill Wexler's Trading Cabana
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To: Carl Worth who wrote (326)4/2/2004 2:59:07 PM
From: Hank  Read Replies (1) of 6370
 
"...if a person buys a house with less than 20% down these days, they have to pay PMI..."

The problem with assuming PMI is an all inclusive blanket of protection for banks is somewhat misleading. Many people who bought their house only a few years ago with less than 20% down have seen their home values appreciate enough to qualify for 20% equity based on current home prices. By law, the banks have to pardon these people from paying PMI. However, if the real estate market should suddenly crash severely enough to depreciate that house and wipe out that 20% equity, the bank holding the mortgage is now at risk if the owner defaults. A similar situation happened here in CT in the 80's and left a lot of people "stranded" in their current homes because they now owed more than the home was worth. A lot of banks took it in the keester too because the flop in the housing market was accompanied by a concomitant increase in unemployment.
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