Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

Another day, another piece of evidence that "waiting for mortgage rates to fall" is a flawed financial strategy.

This time, we look at private mortgage insurance.

Versus last year, PMI defaults are up 40 percent and mortgage insurers are booking huge losses.  In response, they're taking a page out of Fannie Mae's playbook.

First, to help reduce the number of defaults nationwide, the PMI companies have dramatically tightened their underwriting guidelines.  The new requirements include minimum credit scores and maximum loan-to-value checks, among others.

And, second, they've raised their fees.

Because most mortgage lenders require PMI when the borrower's equity stake is under 20 percent, the combined effect of these two changes is that fewer Americans can qualify for high LTV home loans, and the ones that can qualify have to pay more to insure themselves.

The chart at right puts it in perspective:

• At 85% LTV, new PMI premiums add 0.210% to homeowner housing costs
• At 90% LTV, new PMI premiums add 0.250% to homeowner housing costs

In other words, mortgage rates could fall by a quarter, but for certain homeowners for whom PMI is mandated, it wouldn't make a difference -- mortgage market gains are being offset by PMI rate hikes.

IRL, the rate hike in PMI impacts a hypothetical homeowner refinancing his 90% loan-to-value, $250,000, 30-year fixed rate mortgage as follows:

• Pre-October 2008: The 0.47 PMI rate yielded a monthly payment of $97.92
• Post-October 2008: The 0.72 PMI rate yields a monthly payment of $150.00

That's an extra $625 in PMI costs annually.

Private mortgage insurance premiums are on the rise because mortgage defaults are on the rise.  It would be like Tampa Bay getting hit by Hurricane Phil, causing the insurance companies to unilaterally raising their cost of Bay Area coverage.  Once bit, twice profitable, they always say.

This month's PMI premium increase is the second rate hike of 2008, largely in response to the soaring volume of new claims filed by lenders.  And, with defaults showing few signs of a slowdown, it's likely PMI rates will rise again.