Mortgages and insurance are both independently and jointly (as mortgage insurance) modeled and analyzed as options, or more specifically, compound options. A new issue in this paper is to model the option to change the investment strategy of the mortgage providers between audits. In particular, we ask the question why mortgage providers forego possibly better rates of return in order to maintain a relatively lower than required risk in their investment portfolios to meet the audits that will take place only at the end of each period. The basic story is that if not defaulting this period leads to a renewal of (under-priced) insurance next period, lenders will take lower risks unless they observe large shocks. Subject to the option to default under mortgage insurance, the optimal value of a typical mortgage provider is evaluated, and subsequently its risktaking strategies deduced. The models provide support to why institutions normally would like to develop a reputation for not taking risk. We also try to answer why institutions that have been stable for a long time may suddenly increase their risks in times of good economic environment. Finally, we propose measures on how the audits of deposit insurers or government can be strengthened.