What is a key characteristic of "private mortgage insurance" (PMI)?

Private mortgage insurance (PMI) is primarily designed to protect the lender in the event that the borrower defaults on their mortgage loan. When a borrower makes a down payment of less than 20% of the home's purchase price, lenders typically require PMI to mitigate their risk. This insurance provides a safety net for lenders, allowing them to recover some of their losses if the property goes into foreclosure and the sale of the property does not cover the outstanding mortgage balance.

In contrast, the other options do not accurately describe PMI. PMI is not required for all Federal Housing Administration (FHA) loans, as FHA loans have their own insurance requirements. It is not applicable to cash purchases, as those do not involve a mortgage and therefore do not require PMI. Lastly, PMI is not a government program; rather, it is an insurance policy provided by private insurance companies. This distinction highlights the role of PMI as a risk management tool specifically geared toward protecting lenders in conventional loan scenarios.