Akwidaa - when we write a mortgage insurance policy, there's a coverage factor involved, typically between 17-40%. The coverage is the percentage of the loan the lender will recover should they take back the home and file a claim with the MI company. The lowest risk borrowers can expect to get the lowest coverage factors, which affords them the lowest MI payments.
So the correct answer is: mortgage insurance covers only a portion of the loan amount, usually roughly 1/3
What a great business it would be if the lender could sell the home, receving all the proceeds, and have another company absorb the full loan...
Feel free to contact me if you'd like further details!
Best, Jeff Marr