Borrowers who are not able to make a down payment of 20 percent are viewed by lenders as a higher credit risk. Private mortgage insurance (MI) enables these borrowers to qualify for a conventional loan by insuring the lender against potential losses in the event a borrower is not able to repay the loan and there is not sufficient equity in the home to cover the amount owed.
Mortgage insurance has helped millions become homeowners by enhancing their ability to obtain a mortgage in an affordable way by reducing the risk of their loans. Private MI is backed by private capital and not the taxpayers, thus reducing government exposure to mortgage risk.
Types of Mortgage Insurance
There are two types of mortgage insurers: private insurers that offer mortgage insurance (MI) and government agencies, notably the Federal Housing Administration (FHA). FHA and MI support efforts to expand homeownership in complementary ways, with FHA traditionally playing an important role serving underserved communities, especially communities that the private sector is not suited to reach. MI also promotes affordable homeownership for borrowers unable to make a down payment of 20 percent. In addition, MI protects taxpayers from exposure to losses consistent with the goals of housing finance reform.
As policymakers look for ways to further reduce taxpayer risk while ensuring access to affordable mortgage credit, MI can offer additional solutions to meet this objective.