Originally Posted by persian54
But that doesn't go toward your equity/principle right?
Why the hell would someone pay X amount more per month and not have it go towards their property?
Mortgage insurance is simply a fee associated with higher risk loans. PMI isn't anything new.
As to why buyers do it, why do people take out credit cards when the offered rate in 20%? It's because they have compromised credit.
Lending institutions allow you to take out a loan for more than an 80% LTV, but you have to pay a fee. People do it because they don't have 20% down, they have bad credit, or other factors that make getting a traditionally financed loan difficult.
The only thing is, moral hazard has increased so much in the housing market that PMI does nothing to prevent a home debtor from simply walking away from the home, and dumping the debt onto the lender. Usually the amount of mortgage insurance collected is FAR below the remaining balance of the loan in case of default. Hence, FHA is insolvent, and going to get a tax payer subsidized bailout footed by you, me, and anyone else who makes enough to actually pay taxes.