As of today, Fannie Mae and Freddie Mac have officially changed their Private Mortgage Insurer Eligibility Requirements (PMIERs), altering the financial and operational minimums required of approved private mortgage insurers (PMIs).
The Federal Housing Finance Agency (FHFA) released drafts of the revised requirements in July 2014, and industry professionals and the general public were allowed to provide feedback and input through September 8, 2014.
Though they won’t go into official effect until December 31, the revised PMIERs will alter the standards that a PMI vendor must meet – and maintain for the life of the business relationship – before they can provide insurance on Fannie Mae- and Freddie Mac-backed loans.
According to Fannie Mae, “during the recent financial crisis, some mortgage insurers were unable to fully pay claims, resulting in losses to Fannie Mae and increased losses to taxpayers.”
In order to prevent these losses in the future, the GSEs moved to strengthen their financial requirements of approved PMI insurers, thus reducing overall risk. The new requirements will ensure that PMIs can meet their agreed-upon obligations regardless of current economic conditions or the marketplace.
“FHFA guided Fannie Mae and Freddie Mac in strengthening and aligning counterparty risk management policies to make certain that private mortgage insurer counterparties are able to fulfill their role of providing reliable credit enhancement for loans acquired by Fannie Mae, even in adverse market conditions,” a Fannie Mae statement reads.
In order to meet these new financial requirements, insurers may raise capital, replace illiquid assets with liquid ones, or enter into reinsurance contracts.
The new PMIERs also address business requirements of PMI insurers, asking that they adhere to uniform guidelines and have a strong quality control and internal risk management infrastructures in place.
"Freddie Mac continually explores ways to broaden access to mortgage credit while reducing risk to taxpayers and building towards a sound and stable housing finance system for future borrowers," said Dave Lowman, president of single-family business at Freddie Mac. "Private mortgage insurance is an important component of the housing finance system, one that helps to make homeownership possible for those families for whom a higher downpayment may be an obstacle."
According Andrew Bon Salle, EVP of single-family business at Fannie Mae, the revised PMIERs will help homeowners have access to stronger, more affordable insurance options.
“Mortgage insurance is a critical part of helping families have access to mortgages that they can afford for the long run,” Bon Salle said. “We are pleased to finalize these requirements, which will help ensure that our mortgage insurance partners are strong counterparties in the future. The publication of these requirements marks a significant milestone in restoring confidence in the private mortgage insurance industry, and will enhance their key role in providing private capital support for our business.”
Essent Group Ltd. Chairman and CEO Mark Casale said the industry will be strengthened by sound standards that are transparent and consistently enforced.
“Now that they are final, the PMIERs will serve as an important set of national standards that give industry counterparties more transparency into the claims paying capacity of private mortgage insurance companies, including Essent," Casale said.
To see full details of the revised PMIERs, visit FannieMae.com