Because of the wealth of financially and economically savvy folks here, I often come here to pose questions of economic significance. Sometimes my questions are ridiculous, because I am not educated on the fundamentals. But I think I hit a solid mark as often as I miss.
It seems that, these days, it's difficult for many people to meet their payments. High risk and low risk alike are walking away, for one reason or another. Option ARM loans ballooned and the rate of refinance to fixed rates has been slower than it needs to be to stem the tide. Mortgages are too expensive, even at a fixed subprime rate.
Now, add PMI for low down payments. This can drive up the costs of mortgages, especially for folks who are LEAST likely to be able to consistently pay a higher mortgage each month.
So, it seems that if the government simply guaranteed or automatically insured mortgages, then everyone could purchase a house at prime rate. This difference can amount to thousands a year, and tens of thousands over the life of the home. The removal of PMI can result in hundreds of dollars in savings to home owners a month, making it easier to make the payment.
As an addendum:
Now, I'm sometimes confused about mortgages. I see quotes like:
$200,000 home, $1459 a month @ 6.21% with 20% down!
I can do the math. This means that even if I front load the risk by 20%, I would still pay $525,000 over the 30 years for a 200k home. That's a total of 565,000 for a 200,000 home. If I stay there for 30 years, my home value has to be higher than 565k for me to have reaped any true equity.
I sometimes wonder at home ownership. On paper, it seems like a raw deal. Sure, you're building equity, but it's slow, and by the time you own 80% of a house valued at 350k if you're lucky, you've already paid $400,000 to do so.