In 1928, baker Otto Frederick Rohwedder patented his bread slicing machine and began selling pre-sliced bread. He marketed his invention as “the best thing since bread was wrapped”. This led to the saying, “the greatest thing since sliced bread.”  

You might say that private mortgage insurance, or PMI, is the greatest thing since sliced bread.  Private mortgage insurance guarantees the top 25-30% of a mortgage loan for the lender. This allows lenders to offer loans to borrowers who cannot afford to put 20% down. The GI Bill opened the door to homeownership for many working-class Americans after the Second World War and private mortgage insurance blew that door wide open. 

The Great Depression and the Second World War changed the structure of lending and banking in this country. In the 1950s, a large down payment or a government-backed (FHA or VA) loan were the only options for most homebuyers. Legislation originating in Wisconsin in 1957 separated the sale of mortgage insurance from all other mortgage products and established private mortgage insurance as an option. 

By the 1990s, most first-time homeowners were taking advantage of that option to purchase their first home; making homeownership attainable for many. However, until the Homeowners Protection Act of 1998, there was no federal mandate for lenders to cancel or remove mortgage insurance and many borrowers paid PMI for the entire life of their loan.  

The Homeowners Protection Act stipulated that homeowners could request cancellation when their equity reached 20% of the home’s value and that the lender must cancel the insurance automatically when equity reached 22% of the home’s original value. 

Legislation passed this century served to further strengthen and clarify the Homeowners Protection Act. The Mortgage Insurance Freedom Act, recently introduced to the House Committee on Financial Services, would extend the ability to cancel mortgage insurance to FHA borrowers, effectively lowering the cost of housing for millions of borrowers. 

For decades, private mortgage insurance has allowed first-time buyers to enter the market years earlier than if they were required to save 20% down. This allows the average buyer to accumulate wealth and assets that would otherwise be out of reach for many. Sliced bread is great, but homeownership is better. 

Questions about mortgage options and programs? Ask one of our Real Estate Loan Specialists by calling 503-588-0211, option 4 or schedule a call here. 

Written by: Elena Christian

Read more mortgage posts:
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