What is Mortgage Insurance and How Does It Work?by Michael Mapes, The Resonsible Mortgage Lender.Com  Mortgage lenders stand to lose a lot of money when a borrower defaults on a loan.  Mortgage Insurance was created to protect lenders from the losses that can occur when a borrower defaults on a mortgage loan. Because lenders can be insured for some or most of the losses, they have been able to loosen their qualification standards for borrowers and loan money to people who might not have gotten it if mortgage insurance didn't exist.Mortgage insurance is required primarily when the borrower's down payment is less than 20% of the home's value.  Mortgage Insurance should not be confused with homeowner's insurance which pays the homeowner for property and contents losses in the case of accid... 10/06/2007