According to an article on the Associated Press, mortgage insurers reported higher defaults in November 2007. As a result, the mortgage insurance companies are reporting hefty losses and share prices plunged.
The article gave a light on what we meant by “default” in US home mortgage. A default take place when a borrower failed to pay the loan for more than 60 days.
The home buyers are required to pay 20% of the house value. Otherwise, they need to take up an insurance. If a buyer missed a payment, the insurance payout will be triggered. A way get around it is to obtain another mortgage to pay for that 20%. It’s a mortgage over mortgage. With higher default risk, the financial companies are less willing to provide this second mortgage and therefore, more business for the insurance companies. With more default, these insurance companies will suffer.
The article gave a light on what we meant by “default” in US home mortgage. A default take place when a borrower failed to pay the loan for more than 60 days.
The home buyers are required to pay 20% of the house value. Otherwise, they need to take up an insurance. If a buyer missed a payment, the insurance payout will be triggered. A way get around it is to obtain another mortgage to pay for that 20%. It’s a mortgage over mortgage. With higher default risk, the financial companies are less willing to provide this second mortgage and therefore, more business for the insurance companies. With more default, these insurance companies will suffer.
