PMI is required of the bank originating the loan when the borrower is insufficiently capitalizing owner equity in the purchase.

Typically, that means PMI is required when the down payment is less than 20%.

Today, that down payment may be as high as 40% as bankers plug in lower future home prices in this correction. Such has been the case for prudent lenders for over a year and a half now, at least in California.

PMI indemnifies the first mortgagor from default.
It is a buy in for the mortgagee to sweeten the loan when it gets sold off to recapitalize the originator, your bank.

If this was answered already, ignore my redundant post.

Isn't PMI protection for the banks? Why didn't it work?

It is only a protection for the underwritten loan.

Upon default, payment is made to the first mortgagor for the failure of the buyers equity position in foreclosure, if upon sale, the collateral asset yields a shortfall when sold at auction.

Usually, the foreclosure sells back to the first mortgagor at auction for the price of the loan balance.

All subsequent seconds and thirds, if there, must clear the first and payoff the first lender and acquire the asset at auction.

That rarely happens.

Often, the first will sell the property at a value less than the loan balance if the PMI can make up the shortfall upon the distressed sale.

For the most part, first lenders do not DUMP distressed properties into the market.

The MLS reflects appraisals and too many DUMPS lowers all values in that asset class.

This is called the REO market in banker language.

REO means Real Estate Owned assets. REOs.

Typically, banks hold these properties until the market rises sufficiently to sell them at a balanced price.

The bankers historically know better than to DUMP distressed properties held in REO without great reservation.

I have rehabbed these properties for certain banks over the years as a General Contractor.

It may return as lucrative bread and butter account activity for Contractors.

OOPS.

IU gave away one of my niche eggs.

Hope that helps understand how this is played.

But the federal government will not be so careful in DUMPING distressed properties, I do believe.

None of the idiots in Washington understand real estate value appraisals nor do they understand banker dynamics in the REO market.

The feds may tank everybody's values if they get too temeritous.

But that's another story. LOL