ORLANDO, Fla. - The jury is still out for issuers who are currently evaluating the value of using deep primary mortgage insurance on their deals.

At the Standard & Poor's conference here last week feedback was mixed.

"We evaluated whether we should use MI in our last deals," said Jeff Upperman, managing director, structured finance at Centex Corp., "and we determined that the economics were more favorable without the insurance."

Issuers must pay a premium to have mortgage insurance in their deals, Upperman said, and they must also determine how much insurance would be made for claims they submit.

Issuers must also calculate the loss on loans that the insurance does not cover, factored in with the operational issues associated with the insurance.

But the use of third parties may mitigate some of this downside, panelists noted. "It's important to have a third party like Murrayhill serve as a kind of watchdog," said an investor. "Murrayhill is responsible for making sure that the claims filed for MI by the subprime servicers are priced correctly."

Investors are asking for a higher interest rate on deals that have deep MI, because if there is less subordination required for these transactions, the amount of liquidity on these deals is diminished.

However,one investor noted that as long as these deals are structured properly, the use of deep MI is a good thing.

One major risk is that many subprime originators and servicers have limited experience in dealing with insurance companies and the claims-submission process, so experts say that there is often a material error rate in claim submission.

But a third party such as Murrayhill would come in and try to eliminate errors in claims submitted. This process reduces the amount of claim adjustments, which occur when servicers fail to follow insurance company procedures.

Though inclined against it, Upperman is not closing his doors on the product.

"We will continue to evaluate the use of mortgage insurance for our future transactions," he said. Factors such as the lowering of premiums might make it more economical for issuers to apply MI to their deals. However, the trend so far has been for premiums to go up.

However, since MI had been introduced to subprime, MGIC has seen strong demand for bulk MI or MI that is purchased at the point of securitization on a pooled-loan basis, versus a loan-by-loan basis.

Last year, MGIC did $7.9 billion in bulk MI, which comprised 19 percent of its total new insurance written last year.

"We estimate that this market is going to account for 15-20% of our new business on a going-forward basis each year," said Geoffrey Cooper of MGIC.

The other major players in the business are PMI Mortgage Insurance Co. and Radian Guaranty Inc.

PMI did $27.3 billion in new insurance last year, 19% of which is on Alt-A and A-minus loans, said Glen Corso, VP for investor and public relations at the company. The company did the first deal in January 2000.

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