Finance
What is the purpose of 'private mortgage insurance' (PMI) and who does it protect?
AIt protects the buyer from property value loss
BIt protects the lender in case the borrower defaults; the borrower pays for it✓ Correct
CIt protects the seller from buyer default
DIt protects all parties equally
Explanation
PMI protects the lender — not the borrower — against losses if the borrower defaults on a mortgage with less than 20% equity. Despite paying the premiums, the borrower receives no direct benefit from PMI. The lender is compensated if the property doesn't cover the full loan balance after foreclosure. Under the Homeowners Protection Act, PMI can be cancelled once the borrower reaches 20% equity.
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