History of PMI Insurance

Mortgage insurance began in the United States in the 1880s, and the first law on it was passed in New York in 1904. The industry grew in response to the 1920s real estate bubble but, after the Great Depression, it was entirely bankrupted. The bankruptcy was related to the industry's involvement in "mortgage pools," an early practice similar to mortgage securitization. By 1933, no private mortgage insurance companies existed. 

The federal government began insuring mortgages in 1934 through the Federal Housing Administration and Veteran's Administration but without PMI — until 1956, when Wisconsin passed a law allowing the first post-Depression insurer, Mortgage Guaranty Insurance Corporation, to be chartered. This was followed by a California law in 1961, which later became the standard for other states' mortgage insurance laws. Eventually the National Association of Insurance Commissioners created a model law.

Max H. Karl, a Milwaukee lawyer, invented the modern form of private mortgage insurance, helping put home ownership within reach for millions of families. This was in the 1950s, after Mr. Karl became frustrated with the time and paperwork required to obtain a home backed by Federal Government insurance, the only kind available at the time. Using $250,000 raised from friends and other investors in his hometown of Milwaukee, Mr. Karl founded the Mortgage Guaranty Insurance Corporation (MGIC) in 1957. Unlike many mortgage insurers that collapsed during the Depression, MGIC would only insure the first 20 percent of loss on a defaulted mortgage, thus limiting its exposure and creating more incentives for savings and loan associations and other lenders to issue loans only to home buyers who could afford them. The guarantee was enough to encourage lenders across the country to issue mortgage loans to buyers whose down payments were less than 20 percent of the home's price. The availability of credit helped fuel the home building boom of the 1960s and 1970s. By the time of Mr. Karl's death in 1995, more than 12 percent of the nation's nearly $4 trillion in home mortgages had private mortgage insurance.

In 1999, the Homeowners Protection Act came into effect as a federal law of the United States, which requires automatic termination of mortgage insurance in certain cases for homeowners when the loan-to-value on the home reaches 78%.



Please call (515) 222-5893 with general Residential Real Estate questions, or contact one of our Mortgage Loan Originators.


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