Pricing Private Mortgage Insurance

Issues involved in an evaluation of the price of private mortgage insurance are discussed. Cost considerations are emphasized as long-run equilibrium competitive market prices equal long-run marginal and average cost. An empirical evaluation of current insurance premiums vis-a-vis competitive market norms requires more empirical information on the determinants of foreclosures, especially the links between micro and macro determinants. Option pricing models suggest other data comparisons that also may shed light on an evaluation of insurance premiums.