For the first time ever, private mortgage insurers reported they insured more bulk volume than traditional volume. But at least one insider says this scenario is not likely to sustain.
Primary insurance written by members of the Mortgage Insurance Companies of America on newly originated one-to-four family conventional mortgages totaled $26.7 billion in December, according to an announcement.
Of the month's total, bulk volume represented just over half, or $13.9 billion. It is unprecedented for bulk volume to outweigh traditional volume, MICA spokesman Jeff Lubar said.
Bulk volume includes a high proportion of subprime, Alt-A, and negatively amortizing option adjustable-rate mortgages, according to an e-mailed statement from Dan Walker, United Guaranty Residential Insurance senior vice president of structured products.
Nonetheless, the bulk channel now contains "a much broader range of credit quality than it once did" due to the growth in the private securities market over the past couple of years, PMI Group Inc. said in an e-mailed statement.
While it is difficult to predict whether the trend of higher bulk volume will continue, according to Walker, one reason such occurred in late 2005 is that there is "typically a surge in bulk at year-end and quarter-end, and December was both." Another main reason is that "bank regulators have been pressuring banks and thrifts to get credit loss protection on high-risk loans such as subprime, Alt-A, and the negatively amortizing option ARMs," he said.
PMI told MortgageDaily.com the shift towards greater bulk mortgage insurance business mirrors the growth in the private-label mortgage-backed securities market versus the government-sponsored enterprise MBS market. The group also cited that widened spreads in the fourth quarter, particularly in December, spurred a number of deals.
"We believe the growing importance of the bulk channel is now an established fact," PMI said. "But having bulk volume be larger than flow volume during a certain time period is probably an anomaly."