There's no law that requires a prospective buyer to purchase mortgage insurance. And mortgage lending is a highly competitive industry. At that point the risk of default is extremely low, and the vast majority of homeowners does stop paying mortgage insurance. The mortgage insurance industry calculates that of the 5 million homeowners covered today by PMI, fewer than 250,000, or 5 percent, are still paying insurance costs after paying down 25 percent of the original house loan. 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. That 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 cases, 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 the risk of a falling market. The House bill and the D'Amato measure won't help financially strapped home purchasers.