Well it never really went away, at least not completely. But just a few short months ago, PMI was frowned upon by 'sophisticated' borrowers and financial gurus.
Why pay PMI, an insurance 'with no benefit to you', when you could just as easily get a combination 1st and 2nd mortgage.
First off, let me dispel the myth that PMI is 'of no benefit'. PMI is that wonderful innovation that lets people buy homes without putting 20% down or paying nosebleed interest rates. Sounds like a fair trade, after all, if you have no money you can still get a home. Not bad I'd say.
But people still hated PMI since it wasn't tax deductible and everyone hates to pay anything labeled as an 'insurance'. So lenders invented the 80/20 loan. You take out two mortgages with the 2nd mortgage being able to allow waiver of PMI and it was tax deductible too. Usually it did work out to be better to do an 80/20 than to pay PMI.
Now the mortgage crisis. 2nd mortgages are still a mortgage and are sold on Wall Street like every other mortgage. Since Wall Street isn't buying loans like they used to, the pool of money for 2nds is drying up. Many 2nd mortgage lenders have gone out of business and credit standards have tightened.
Now it's much harder to get an 80/20 loan and some lenders like Countrywide (which isn't going out of business) have eliminated them altogether.
This perfect storm will lead to a resurgence of PMI as the only viable way of putting less than 20% down. Plus, with recent tax law changes enacted in January, PMI is now tax deductible for loans closed in 2007 if certain requirements are met.*
Source: "PMI Deduction Buried In The Closing Acts of Congress", Mortgage News Daily. 29 January 2007.
*Always consult a tax professional to see how tax laws affect your personal situation and if you personally qualify for the PMI deduction.