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FHFA Needs to Step Up M.I. Oversight Activity

A new report is critical of the Federal Housing Finance Agency’s oversight of Fannie Mae’s and Freddie Mac’s monitoring of mortgage insurance companies — though the regulator doesn’t totally agree with the findings.

As of June 30, 2013, single-family residential loans held by Fannie and Freddie that had mortgage insurance stood at $587 billion.

Data collected by Mortgage Daily indicate that MGIC Guaranty Insurance Corp.’s insurance in force stood at $159 billion as of June 30, 2013, while Radian Guaranty Inc. had $151 billion in primary insurance in force.

At Genworth Mortgage Insurance Corp., the total was around $109 billion, and United Guaranty’s total was in the neighborhood of $135 billion.

FHFA has actively pursued implementation of new master policy agreements and eligibility requirements for mortgage insurers as the financial condition of some insurers has deteriorated.

Around $49 billion in loans were insured by distressed mortgage insurance companies as of mid-2013.

But despite its efforts, FHFA can do more to strengthen its oversight of M.I. company monitoring by the government sponsored enterprises.

That is according to a report from the FHFA Office of Inspector General. The report was based on an independent audit conducted by CohnReznick LLP.

Among the opportunities being missed by FHFA is implementing a formal oversight plan for insurers with weak financials. Such a plan should define the roles and responsibilities of the various FHFA components and the GSEs in this area.

FHFA can also improve oversight of new mortgage insurer approval, which is delegated to Fannie and Freddie.

“Such delegated approval is limited to counterparties where there are no reasonably foreseeable material increases in operational risk, which is generally not the case for a new mortgage insurer,” the report stated. “Additionally, FHFA does not have a formal process for evaluating new mortgage insurers, including enterprise risk assessments and justification for conditional approval requirements.”

The report recommends that policies, procedures and processes are established for monitoring business conducted with M.I. firms.

It also calls for FHFA to develop specific criteria that classifies new insurers as non-delegated activities that require FHFA approval.

In a written response, FHFA said that it believes the responsibility to assess, manage and approve new insurers rests with the GSEs.

In addition, the report said a methodology should be developed for FHFA’s review of new mortgage insurers. The methodology should ensure procedures performed are adequately documented and support conclusions reached during the review.

“FHFA generally agreed with the first recommendation but did not provide responsive comments to the second and third recommendations, which OIG considers unresolved,” the inspector general said.

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