The use of lender-paid mortgage insurance in residential ABS declined in the fourth quarter 2001, after peaking near the middle of the year, according to research from Moody's Investors Service.
Allegedly, the LPMIs had satisfied their appetites for subprime ABS by the end of the third quarter.
"That doesn't mean that they wouldn't be interested in doing deals this year, and we are seeing an interest in that," said Henry Engelken, a vice president and senior credit officer at Moody's. However, the LPMI companies are expected to raise their prices for the subprime product line, Engelken added, which could make monolines more competitive again.
As always, issuers are going to be evaluating which type of credit enhancement makes the most sense economically, "and whether to use LPMI as a credit enhancement, or use a monoline, or do some other type of structure."
Not surprisingly, in the fourth quarter, the monoline insurance companies benefited from the decline in LPMI use, and wrapped more than $5 billion in home equity deals, compared to the previous quarter, when the monolines had all but disappeared from the real estate market.
During the quarter, sources from the various sureties said that the pickup in business was also attributed to investor preference for wrapped paper, given the credit environment.