[Update 1: Compass Point based findings on data provided by Inside Mortgage Finance. The article is now updated.]

Private mortgage insurance activity rose sharply in the second quarter, grabbing the lead in market share from the Federal Housing Administration for the first time since the first quarter of 2015, according to a client note from Compass Point Research & Trading.

According to the Compass Point note, authored by analysts Amy DeBone, Fred Small and Isaac Boltansky, and based on data from Inside Mortgage Finance, the PMI share of the mortgage insurance market rose to 37% in the second quarter, while the FHA share of the MI market fell from 40% to 34%.

The Compass Point analysts note that this is the first time that private mortgage insurance outpaced insurance written by the FHA since the first three months of 2015, during which the FHA cut its annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%, per the direction of the Obama administration.

The effect of the cut was widespread and significant, as the FHA’s mortgage insurance business exploded in 2015 and the FHA actually reached its Congressionally mandated threshold of 2% on its flagship Mutual Mortgage Insurance Fund years ahead of the its own predictions.

Another effect of that cut was that the FHA grabbed the MI market share lead, which it held from the first quarter of 2015 until the second quarter of 2016.

According to Compass Point’s note, new insurance written by private mortgage insurers jumped 56% to $71.5 billion, which represents the highest quarterly volume since the first quarter of 2008.

Compass Point’s analysts noted that the decline in FHA insurance is “notable,” because it’s the opposite of what was expected.

According to the analysts, the private mortgage insurance companies implemented rate adjustments for borrower-paid monthly mortgage insurance in the second week of April, increasing rates for loans with FICO scores lower than 740 and decreasing rates for loans with FICO scores above 740.

According to Compass Point, borrower-paid mortgage insurance monthlies represent more than 70% of new insurance written.

Due to those adjustments, the analysts expected the FHA share to climb, but that’s not what happened.

Despite the positive news for private mortgage insurers, the possibility of a further FHA MI rate cut is very real, as Compass Point’s analysts have previously noted.

Earlier this year, Compass Point’s Boltansky placed the odds of an additional FHA rate cut this year at 60%, although Boltansky noted at the time that there seems to be no consensus about what the structure of the potential cut will be or when exactly the announcement is coming.

There is some thought, Boltansky wrote, that the announcement of an additional FHA premium cut would come before November’s Presidential election, in order to “ensure the maximum political benefit.”

Others think that the next round of cuts will be announced after the FHA releases its 2016 actuarial report in mid-November, potentially mere days after the November 8 election, according to Boltansky.

As for where things stand now, Boltansky suggests the decline in FHA issuance could lend more political will to cutting rates again.

According to the Compass Point note:

Additionally, our Washington Policy analyst, Isaac Boltansky, notes that the 2Q16 market share decline, however marginal, could ease the political path to an MIP cut. With that said, we reiterate our view that current PMI valuations are discounted based on the uncertainty surrounding potential for, and impact of, an FHA MIP cut.

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