How can a mortgage company go bankrupt?
I understand that ‘sub-prime’ loans are being forclosed on left and right, and I understand why. But what I don’t understand is this: if I have a ‘sub-prime’ mortgage for more than 80% of my home’s value I am also paying PMI – Private Mortgage Insurance. Quite literally, I am paying for my Mortgage Company’s insurance policy against the loss they will encounter if I default on my mortgage.
So, if I default the mortgage company gets my house and sells it and then makes an insurance claim (against the policy I paid for all those years) against any net losses. So if they can’t lose – they make money if I pay my bill and they don’t lose money if I don’t – then how come they are going bankrupt?