Bulk insurance (a.k.a. portfolio insurance) is a specialized form of mortgage default insurance that lenders purchase for a portfolio of loans.
Bulk insurance protects the lender from borrower defaults on a broader scale.
It serves three primary purposes:
- Risk reduction
- Securitization (Liquid markets like the Canada Mortgage Bond and NHA MBS program require all mortgages to be insured)
- Capital preservation (insured mortgages require lenders to put up less capital to back their loans)
Bulk insurance applies to mortgages with 20% equity or more. This differs from "high-ratio" (transactional) mortgage insurance, typically purchased by borrowers when they have a down payment of less than 20%.
CMHC, Sagen and Canada Guaranty all sell bulk insurance to lenders.