Monthly Archives: August 2011

PSA About the darn banks

So last I checked, when we get a loan we have to pay PMI- Private Mortgage Insurance. It’s actually a bill that is incurred by the bank, that they pass along to the buyer, and the buyer pays it or else they don’t get their loan. It’s to cover the bank if the buyer defaults and the foreclosed house sells for a loss. Kind of like gap insurance on a car that you purchased- if your car gets totaled and your payout is less than you owe- in comes gap insurance.

Here are my two beefs with this whole PMI thing (two and a half, the fact that the buyer pays it is a little mini-beef).

1) Do you know who pays the difference? The insurance company. Know what happens if (say during a market crash) the insurance company declares bankruptcy? One of two things.

American International Group (AIG) is the largest business insurer in the world. On September 16, 2008, the Federal Reserve agreed to extend an $85 billion bridge loan to keep the insurer from declaring bankruptcy and giving it time to improve its financial position. If it does not, well $85 billion’s not a lot, right?

If it is a smaller insurance company then the state government steps in an covers for it more directly- i.e. pays out it’s claims (although there is a variable cap).

Either way, the final translation is the same: YOU pay for the defaulted mortgage. YOU, the taxpayer. The one who more than likely paid an insurance premium on your own home as well.

2) Well- no big deal right? I mean just say that the market fails- first the house goes into foreclosure and they sell- then the insurance company only has to pay the difference right? That’s not a lot, right? WRONG.

Banks are not managing their properties properly- and why should they? They get the same amount of money either way (actually they might stand to lose a bit by properly managing them, I’m unsure if they’d get reimbursed for that). So they get damaged or run down, ¬†and as a result are selling for Way Way WAY less than the loan. And we are suffering, on several levels for that.

Do something about it. Say something about it. We have a thousand venues for using our voices, let’s get foreclosed property management regulated. There’s another round of foreclosures coming- taxpayers don’t need to pay for them as well.

 

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