A study by PMI Mortgage Insurance Co. found that piggyback loans may pose risk to the mortgage system; especially vunerable are high priced housing markets. The borrower can use a second mortgage to “finance” a portion of the down payment. This creative financing technique has allowed more purchasers to be more highly leveraged. The study suggests that higher priced housing markets, where the gap between affordability and price is wider, are seeing more of this type of financing and are therefore subject to greater risk in a housing downturn.
[USA Today](http://www.usatoday.com/money/perfi/housing/2005-07-27-risk-real-estate-usat_x.htm) put together the results of the PMI study in the following table.
The [PMI Risk Index](http://money.cnn.com/2005/08/03/real_estate/buying_selling/pmi_riskiest-markets/) predicts the risk of home-price declines over the next two years using local economic forecasts.
Piggyback loans — so called because a second mortgage is piggybacked on to a first to compensate for a smaller down payment — have become common in recent years as housing prices have appreciated. Approximately 42 percent of home purchase mortgage loan dollars involved piggyback loans during the first half of 2004, up from 20 percent in 2001.
Here is the [PMI Report [Note: PDF]](http://www.pmigroup.com/lenders/media_lenders/pmi_eret05v3s.pdf)
Local media coverage based on risk:
[San Diego, CA Note: Subscription](http://www.mercurynews.com/mld/mercurynews/news/12243396.htm)