AgentMortgage

Help from feds not a bailout

Part 4: Fixing the housing finance system

(This is Part 4 of a five-part series. Read Part 1, "Lenders wise to beef up default-risk reserves"; Part 2, "Borrowers, insurers would save with new mortgage insurance"; and Part 3, "Mortgage insurance cheaper under new plan"; and Part 5, "Struggling borrowers get fresh start under new plan.") In previous articles, I described a new type of mortgage insurance called mortgage payment insurance, or MPI. Under MPI, the insurer would guarantee timely payments to investors after borrowers default. If the default is not corrected, payments from the insurer continue until the foreclosure process is completed, at which point the investor is reimbursed for the unpaid balance plus foreclosure costs. Under an MPI policy, mortgage insurers assume all of the default risk except the small amount associated with caps on coverage, and the risk that the insurer itself will fail, as discussed below. Assuming the caps are adjusted to meet investor requir...