AIG Mortgage Insurance Said to Become Bonds as Housing Mends

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Credit Suisse Group is seeking to sell almost $300 million of notes tied to mortgage-insurance policies written by an American International Group Inc. unit, offering investors a new way to profit from a reviving U.S. housing market.

When the deal closes, AIG's United Guaranty Corp. will receive reinsurance protection on about $32.4 billion of loans from Bellemeade Re Ltd., a Bermuda company that's issuing the debt, according to a marketing document obtained by Bloomberg.

The deal would tap into appetite for mortgage-related investments as low yields on safe debt drive fixed-income buyers to embrace more exotic options. While sales of the kind of bonds that fueled the 2008 housing crisis have stalled, investors have driven up the value of older notes and are snapping up newer types, including securities from taxpayer-backed Fannie Mae and Freddie Mac that allow buyers to share in their risks.

The planned notes tied to United Guaranty policies resemble those risk-transfer transactions, which have totaled about $20 billion since beginning in 2013. They're also similar to so-called catastrophe bonds sold by insurers and some of the transactions tied to mortgages that existed before the crisis. Mortgage insurer Radian Group Inc., for instance, executed a series of bond deals to transfer its nonprime mortgage risk called Smart Home transactions starting in 2004.

Jo Fleischer, a spokesman for United Guaranty, declined to comment, as did Drew Benson, a spokesman for Credit Suisse.

United Guaranty, the most active mortgage insurer, typically offers protection to Fannie Mae and Freddie Mac against losses on loans to borrowers who don’t have 20% to put down or an equivalent amount of home equity in a refinancing. Premiums usually get paid by borrowers.

The new notes, which would carry three different levels of risk tied to the amount of losses from homeowner defaults, aren't expected to be rated initially, the document shows. Proceeds from the sale would be placed into a reinsurance trust and be available to pay United Guaranty or noteholders.

Bloomberg News
Secondary market PMI Securitization GSEs Risk management Bond insurance
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