No its not wrong. PMI does not "just" cover the last 10 or 20%. Its just required if you buy a home with a LTV of less than 80%, that is, if you put under 20 percent down payment. It does not mean that the PMI only covers 10 or 20 percent of the amount borrowed.
When the buyer of the home has a big stake, such as when he puts a large amount of his cash down, he is less likely to default.
Fannie and Freddie loans usually have less than 20% down payment, so PMI is required. Its paid by the borrower. Loans where the buyer puts 20% or more down payment are considered low risk to the lender and no PMI is required.
The whole point here is that the underlying security (mortgages) in MBS packages are privately insured, not government guaranteed. Its redundandant to have both private insurance and a government guarantee. Why would any one pay for insurance, if the government footed the bill? There would be no need for insurance.
Insurance is designed so as not to "profit" the person who has a loss, but to put the risk of loss on others. (The insurance company).
I was simply explaining there is no government guarantee on Fannie, the insurance on Fannie loans which protect lenders and investors is PRIVATE insurance, thus the term PMI, which stands for private mortgage insurance.
The so called fannie backstop is hogwash. Fannie and freddie were put into cship, and investors lost lots of money. Otherwise, if they were government guaranteed, investors could capitalize on said guarantee. However, no government guarantee exists on Fannie or freddie, Its a myth.
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