NEW YORK - While the use of lender-paid or "deep" mortgage insurance (deep MI) has become very popular as a form of credit enhancement in traditional, Alt-A MBS, subprime ABS deals and most recently, net interest margin (NIM) transactions, there are still many unknown factors and variables that have left analysts and market participants worried about potential pitfalls with its use.

At a Mortgage Market Update conference sponsored by Fitch in New York last week, analysts explained the basics of deep MI and how this type of policy differs from standard primary mortgage insurance (PMI), and reviewed some of the risks associated with this increasingly popular insurance option. They also discussed the advantages of using deep MI for NIM transactions.

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