Although the buyer typically bears the cost of PMI, the lender is the PMI company’s client, and shops for the PMI on behalf of the borrower. Many lenders deal with only a few PMI companies because they know the guidelines for those insurers. This can be a problem when one of the lender’s prime companies turns down a loan because the borrower doesn’t fit its risk parameters. An uneneterprising lender might follow suit and deny approval on the loan application without consulting even a second PMI company. This obviously could leave all the parties involved in an undesirable position.
The lender has an increasingly difficult task to be fair to the borrower while shopping for the most effective method to soften liability. Sometimes, it may appear that a lender has no justification for doing what he or she does – but if we look deeper, it is undoubtedly there.