Marketing to Lenders Lowers PMI Premiums

In his April 9 article (“Burden of Insurance Falls on the Buyer, Not the Lender”), Jack Guttentag states that: “When the borrower pays, lenders have little interest in minimizing insurance costs,” and, “The ultimate effect is to raise borrowers’ costs.” I would like to present a different view.

First, there are fewer than a dozen PMI companies; it’s not like car insurance. Second, PMI companies are required to file their rates with the state Department of Insurance, and can’t depart from the rates they file. This means that the rates are effectively not negotiable. Third, the rate structure is very complex, beyond the ability of the average home buyer to understand quickly.

Finally, rate differences among insurers are inconsequential, less than $5 a month, not enough to induce most homeowners to shop. In fact, because insurers market to a relatively small universe of lenders, their marketing costs are quite low.

By comparison, any company marketing consumer products to the general public has to have a substantial staff to handle advertising, marketing and sales. These services typically cost 20% or more of the final cost to the consumer.

If PMI companies marketed directly to consumers, it would mean premiums would be 20% higher than they are now.

Home buyers would be better served getting better educated about other aspects of mortgages.

RANDY JOHNSON

Newport Beach

https://www.loan-wolf.com

The writer is a mortgage broker and author of the book “How To Save Thousands of Dollars on Your Home Mortgage.”

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