And this is a highly competitive industry. At this point the risk of default is extremely low. In the first place, the vast majority of homeowners stop paying mortgage insurance at this point. The mortgage insurance industry calculates that out of 5 million homes today with private mortgage insurance, less than 250,000 or 5 percent, are still paying insurance costs after paying down 25 percent of the original house price. There's a perfectly rational explanation for why some homeowners still require insurance after paying down 25 percent of their loan.
Housing markets fluctuate.
Home prices sometimes depreciate in value by more than 25 percent. This was the case, for example, in the Houston housing market during the oil slump in the late 1980s and in the New England states during the real estate and banking crisis of the early 1990s. In such a case, the owner may still have a financial incentive to walk away from the home, rather than pay off the balance of the mortgage. A prudent lender requires protection against this risk of a falling market. The House bill and the D'Amato measure won't help financially strapped home purchasers.