What is MI?

Private Mortgage Insurance (MI) protects lenders against loss on high-ratio loans (typically loans over 80% Loan-To-Value (LTV) ratio) in the event a borrower defaults on a mortgage.

If a borrower stops repaying a mortgage, the lender must obtain title to the property that secured the mortgage loan. This usually involves time and expense. If the property cannot be sold for an amount equal to the lender’s investment, then the lender faces a loss. In return for premiums paid (usually by the borrower) that generally total 15% or more of the loan amount, RMIC takes some of the risk if the collateral (the home) is not worth enough to pay off the mortgage balance plus additional costs. These costs include interest charges, legal fees, home maintenance and repair expenses, real estate brokers’ fees and other closing costs. 

The mortgage insurer also acts as a review underwriter for credit and collateral risks related to individual loans, as well as for local, regional and national economic risks that could increase the loss from mortgage defaults. Recognizing the near certainty of losses on most foreclosures, the major investors who supply liquidity to the mortgage market, such as Fannie Mae and Freddie Mac, require mortgage insurance on low down payment loans. The two agencies generally require that mortgages with loan-to-value ratios higher than 80% have insurance coverage.