When I bought my home years ago I had to pay for PMI untill I had 20% equity in my home. I was told it would step in and protect the bank if I walked away from my loan obligation and the bank had to forclose. So with all these forclosers in the news today why isn't PMI paying off and protecting the banks or was it a scam to begin with?

Because people are taking out 80/20 loans so they don't have to pay the PMI. It's NOT a scam, if you can't afford the 20% down and can't afford the PMI then you have no business taking out a loan. People get all starry eyed when they see great deals on ARMs and interest only loans, and they jump at the chance, but every good thing has its downfalls. THIS is one of them. People are foreclosing because they can't afford that great house once their rate adjusts or when they have to pay more than interest alone.
It has nothing to do with PMI.