Definition:
Bulk insurance, also known as portfolio insurance, is a type of mortgage insurance that lenders purchase in bulk for a group of low-ratio mortgages (where the borrower has a down payment of 20% or more). Unlike individual mortgage insurance, which protects a lender against the risk of a single borrower defaulting, bulk insurance covers a large portfolio of loans, reducing risk across the entire group.

Why lenders use bulk insurance

Lenders use bulk insurance primarily to transfer risk, making it easier for them to sell these mortgages on the secondary market or to qualify them for securitization. By insuring low-ratio mortgages through a bulk policy, lenders gain flexibility in managing their portfolios while ensuring a level of protection against default risks, even for clients who wouldn’t otherwise require insurance.

Who pays for it?

While the borrower generally isn’t charged directly for bulk insurance, lenders may pass on the cost indirectly through slightly higher mortgage rates. Bulk insurance is typically arranged at the lender’s discretion and benefits the lender’s overall risk management strategy rather than the individual borrower’s loan requirements.

How bulk insurance differs from standard mortgage insurance

Unlike traditional mortgage insurance, which is mandatory for high-ratio mortgages (those with less than a 20% down payment), bulk insurance is optional and applies to low-ratio loans. This optional insurance enables lenders to package and manage mortgage portfolios more effectively while giving them the ability to secure favorable funding terms on the capital markets.

Last modified: November 5, 2024