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Mortgage Insurers Offer Mixed Reactions to FHFA Reqs

The mortgage industry had a lot to say late last week following the release of new draft standards for private mortgage insurers to work with GSE loans—and not all of the reactions were positive.

The Federal Housing Finance Agency (FHFA) made waves Thursday with the publication of new proposed rules for private companies insuring loans for Fannie Mae and Freddie Mac.

Calling the current eligibility requirements inadequate, the agency has established a grid-based approach to risk that now considers a number of factors, including loan vintage, original loan-to-value ratio and credit score of performing loans, and delinquency status of non-performing loans. The draft also includes a two-year phase-in period for approved insurers to fully comply with the finalized financial requirements.

U.S. Mortgage Insurers (USMI), a trade group comprised of a number of member insurers, was quick to lend its support in a statement: "Once finalized, the new PMIERS [private mortgage insurance eligibility requirements] will complement the significant progress the industry has made since the housing downturn," the group said, adding that its member companies intend to provide additional comments to FHFA during the 60-day notice and comment period.

Some responses were less glowing, however—including that of USMI member Mortgage Guaranty Insurance Corporation (MGIC), which expressed doubts in an initial statement about its ability to meet the minimum for required assets.

"The state goal of these financial requirements is to 'ensure that Approved Insurers have adequate liquidity and claims-paying capacity during periods of economic stress.' However, in our view, the Draft PMIERs would require insurers to maintain liquid assets far in excess of the amount required to achieve that goal," the company said.

MGIC added that while it will work to mitigate any potential shortfall, "there can be no assurance that the financial requirements would not become more onerous in the future."

Radian Guaranty expressed similar concerns about the potential side effects of the proposed requirements, though the company says it is confident it will be able to comply by the end of the two-year transition period.

"We do believe that these proposed requirements, if not modified, have the potential to increase the cost of borrowing for future homebuyers, and could also restrict access to credit," commented Radian CEO S.A. Ibrahim. "This may impact many low- to moderate-income, deserving borrowers, including certain minority groups, who are particularly vulnerable today based on lower credit scores and limited savings for a downpayment."

The company remarked that it believes the PMIERs "are inconsistent with the FHFA's stated goal of expanding access to mortgage credit and reducing taxpayer risk by increasing the role of private capital in the mortgage market."

Meanwhile, relative newcomers to the private insurance market—whose business doesn't include the riskier vintages of the last decade—offered a more favorable view.

First up, Essent Guaranty, Inc., which says it is in compliance with the new capital adequacy requirements based on its financials as of the first quarter: "We believe that the proposed risk-based capital adequacy framework in the PMIERs is fundamentally sound," said chairman and CEO Mark Casale, adding, "The PMIERs will serve as an important set of national standards that give industry counterparties added confidence in the claims paying capacity of private mortgage insurance companies."

Add to that the response from Arch Mortgage Insurance, which also says its current assets exceed the requirements.

"We welcome the new standards in the draft PMIERs as a prudent means of ensuring that approved mortgage insurers have the necessary available assets and financial strength to fulfill their contractual obligation to pay claims in a wide range of macroeconomic environments. We are gratified that Arch MI’s financial strength allows us to meet the draft financial standards today," said president and CEO David Gansberg.

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