Because of the risk on default and loss of the loan. Lenders require private mortgage insurance known as PMI on mortgages with down payments less than 20% from the purchase price.
If lenders paid for mortgage insurance and passed on the cost to borrowers as a higher interest rate, they might have bumped up against those ceilings. If the borrower paid the premium, this potential roadblock is avoided.
Generally, the larger the loan amount, the more risky it is to the lender. Private mortgage insurance is protection for the lender against a borrower defaulting on the loan. If the borrower can’t pay back the loan, the lender has a way to get its money back.
Three of the nation’s largest mortgage lenders have put sizable packages of nonperforming and reperforming mortgage loans on the market for investors to buy, according to New York Mission Capital Advisors.
Bank of America has put up approximately $2.56 billion worth of delinquent debt for sale, including nonperforming loans, reperforming mortgages (those in which the borrower was 90 days or more behind but has resumed making payments), and home equity lines of credit (HELOCs), according to Mission Capital.
Citigroup has put up $1.8 billion worth of reperforming mortgages for sale, and JPMorgan Chase is looking for a buyer for $143 million worth of nonperforming mortgage loans, Mission Capital said. Last month, Freddie Mac announced that it intended to sell $410 million worth of delinquent mortgage loans. But there has been so much of a demand that the suppliers cannot keep up, Mission Capital said.