Private Mortgage Insurance

Abstract

Private mortgage insurance ("PMI") is an important segment of the home mortgage market and has been a significant contributing factor to the high and growing incidence of occupant home ownership in this country, including particularly occupant home ownership by low- and moderate-income families. PMI is written by private PMI companies that are extensively regulated by state laws that in important respects vary from state to state. But the market role of the PMI companies is also heavily influenced by federal laws that have created and regulated both major competitors of PMI companies and major sources of these companies' business. The competitors are two federal agencies, the Federal Housing Administration ("FHA") and the Veterans Administration (''VA''), each of which insures a large volume of home mortgage loans. The sources of business are two mammoth private companies, the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), each of which was created and is heavily subsidized by the federal government and each of which purchases a high percentage of the mortgages insured by PMI companies. The extensive array of federal laws that has established the market interrelations among these various market participants is a subtle product of political and financial pressures. Many of these laws have changed over time and are vulnerable to further change. This Article considers the nature of the PMI market and the principal participants in or affecting that market, with emphasis on the laws regulating the participants and the market. Coverage sequentially is as follows: Section I, The Market for Private Mortgage Insurance; Section II, Private Mortgage Insurance Companies and Their Operations; Section III, Government Regulation (reviewing both state and federal laws of relevance to PMI); Section IV, Possible Legal Changes (stressing proposals for change in federal law of relevance to PMI); and Section V, Conclusions (including some observations as to how the PMI market and market participants may change in the future).