Fannie Mae has recently introduced another insurance product to help lenders satisfy its charter requirement for high-LTV loans. The government-sponsored enterprise's (GSE's) charter requires it to ensure appropriate credit enhancement of loans that have a loan-to-value (LTV) ratio that's greater than 80 percent when it is acquired by Fannie Mae.
"Fannie Mae's Enterprise-Paid Mortgage Insurance (EPMI) offering provides our lender customers with another option for obtaining mortgage insurance that satisfies Fannie Mae's charter requirement for high-LTV loans," Robert Schaefer, VP, Credit Enhancement Strategy and Management at Fannie Mae wrote on the GSE's blog. "Initially, we are offering EPMI on a limited pilot basis, as an execution option that is available to participating lenders and borrowers."
Schaefer wrote that the new lender option would enable Fannie Mae to streamline the operational requirements of "participating lender customers, increase the certainty of coverage for our credit investor partners, and better manage Fannie Mae's counterparty risk." He said that the new product applied many of the same concepts developed in Fannie's Credit Insurance Risk Transfer (CIRT) structure and represented another innovation for transferring credit risk from Fannie Mae to the private market while diversifying the providers of the credit protection for its single-family business.
The EPMI enables lenders to deliver a loan with an LTV greater than 80 percent to Fannie Mae without the lender-acquired mortgage insurance, in return for an additional loan-level price adjustment fee paid by the lender to Fannie Mae. The GSE said that loans under this option would be covered under a forward insurance arrangement secured by Fannie from an approved insurance provider.
"The process for settling EPMI claims is streamlined by Fannie and is similar to the process for settling claims under its CIRT transactions. If a loan defaults, claims are paid after the property disposition when the actual loss on the loan is known," Schaefer said.
According to Fannie Mae, the product offers a more streamlined process for lenders in the following ways:
- Fannie Mae is responsible for acquiring the insurance, filing claims, and performing monthly reporting.
- Loan quality and eligibility are determined by Fannie Mae, not a combination of Fannie Mae and MI guidelines.
- Participating servicers look to one set of servicing guidelines for their loss mitigation offerings, liquidation decisions, and related approvals.
- Because the operational processes required under EPMI are similar to those required for CIRT, Fannie Mae can leverage the simplified process and infrastructure that already supports CIRT transactions.
- When Fannie Mae files a claim under EPMI, it submits a single data report to the insurance provider.
- The claim is settled after property disposition when the actual loss on the loan is known.