PMI: mortgage backstop from the Alger Report to Dodd-Frank
| Published date | 04 February 2014 |
| Date | 04 February 2014 |
| DOI | https://doi.org/10.1108/JFRC-02-2013-0003 |
| Pages | 43-48 |
| Author | Adolph Neidermeyer,Naomi E. Boyd,Presha Neidermeyer |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
PMI: mortgage backstop from
the Alger Report to Dodd-Frank
Adolph Neidermeyer
Accounting Department, West Virginia University,
Morgantown, West Virginia, USA
Naomi E. Boyd
Department of Finance, West Virginia University,
Morgantown, West Virginia, USA, and
Presha Neidermeyer
Accounting Department, West Virginia University,
Morgantown, West Virginia, USA
Abstract
Purpose – The purpose of this paper is to provide a historical perspective and going-forward
assessment of the importance of private mortgage insurance (PMI) entities in the residential-lending
landscape in the USA.
Design/methodology/approach – Financial data from the PMI entities and federal income tax data
were analyzed to comment on the importance of the PMI entities in the historical and current
mortgage-lending environment.
Findings – PMI entities played a critical role in expanding the population of mortgage candidates for
financial institutions. Through the guarantees offered by PMI entities, financial institutions granted
loans to individuals who otherwise would not have qualified for mortgages.
Originality/value – No prior research has assessed the overall historical role played by these
primary PMI entities.
Keywords Government sponsoring entities, Privatemortgage insurance, PMI premium deductions,
PMI entities
Paper type Viewpoint
I. Introduction
A working awareness of the role played by organizations offering private mortgage
insurance (PMI) is key to understanding how the US residential housing market
functionedthrough time. Realizationof the American dream of individualhomeownership
has been facilitated by this financing accommodation, since this insurance product has
offered a reduction in the risk assumed by banks in granting individuals without the
required down payment a mortgage. In this article, we trace the initiation, operation and
success of PMI organizations through time to present a snapshot of the supporting role
this product has played in permitting broad-based homeownership.
PMI provides an element of default protection to the mortgagelender in the residential
housing market. This relative “comfort” comes from the fact that the potential loss from
default on required mortgage payments would be partially covered by the insurance
company. This coverage has encouraged lenders to advance credit to those deemed not
as financially-qualified (e.g. borrowers with less than a 20 percent down payment).
PMI can be purchased with differing scopes of coverage: flow, bulk, pool and reinsurance;
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
Journal of Financial Regulation and
Compliance
Vol. 22 No. 1, 2014
pp. 43-48
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/JFRC-02-2013-0003
PMI: mortgage
backstop
43
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