Under what circumstances might a conventional mortgage (with 20% or more down payment) still be covered by mortgage default insurance?
Correct Answer
B) When the lender chooses to securitize the mortgage
Lenders can buy portfolio (bulk) insurance on pools of low-ratio mortgages so they can be used in government-backed securitization, such as NHA mortgage-backed securities and Canada Mortgage Bonds. Under the Insurable Housing Loans Regulations, an insured low-ratio loan placed in a pool must be in NHA-guaranteed securities. This insurance is acquired after origination and is typically paid for by the lender, not the borrower.
Why This Is the Correct Answer
This is correct because the main reason a low-ratio mortgage ends up insured is that the lender wants to securitize it. Portfolio insurance makes the loan eligible for government-backed securitization, and the lender, not the borrower, normally pays for it.
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