Which of the following best supports the claim that charging PMI is fa

QUESTION

Which of the following best supports the claim that charging PMI is fair to homebuyers?

A) In some circumstances, PMI charges can be tax-deductible.
B) Homebuyers who are charged PMI and are at risk of defaulting could typically pay for PMI by spending less on entertainment or luxury items.
C) The risks of loan default are not adequately reflected in the interest rates different people pay for their mortgages.
D) Many consumers are not aware of PMI until they receive their first bill, even though PMI is included in the good-faith estimate required of lending institutions.
E) In many areas, homebuyers are also required to insure against flood damage.

ANSWER

Answer: C
Explanation: C) The marketing professional claims that PMI provides value by insuring lenders against the risk of lending to high-risk homebuyers, but if that risk is already reflected in a higher interest rate, then they wouldn’t need PMI to provide additional insurance. If Choice C weren’t true, then PMI would sound worse, so if Choice C were true, PMI would sound a little better. Choices A and B, at best, make the effects of PMI sound less awful, but they don’t support the notion that it is fair to charge PMI in the first place. Choice D makes PMI sound even worse. Choice E tells us about other kinds of insurance but nothing about the fairness of PMI.