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Concerns Over New Mortgage Insurer Requirements

While much of the mortgage insurance industry has thrown its support behind proposed eligibility requirements for insurers on government-sponsored enterprise loans, at least two firms have expressed concern.

Fannie Mae and Freddie Mac have been directed by their regulator and conservator, the Federal Housing Finance Agency, to revise, expand and align their risk management requirements for approved mortgage insurance companies.

A draft of the new private mortgage insurer eligibility requirements released on Thursday includes updated financial requirements that utilizes a risk-based framework to ensure mortgage insurance companies have enough liquid assets to pay claims.

In addition, enhanced operational performance expectations are included as are remedial actions that would occur should an M.I. company fail to comply with the revised requirements.

A two-year phase-in is proposed.

Input on the draft requirements is being accepted until Sept. 8.

A statement issued from the U.S. Mortgage Insurers expressed support for the effort to establish standards. The trade group said the standards will help provide confidence to market participants and policy makers.

“Once finalized, the new private mortgage insurer eligibility requirements will complement the significant progress the industry has made since the housing downturn,” USMI said. “The M.I. industry has recapitalized, attracted new entrants and finalized new master policies that will go into effect Oct. 1 of this year and provide greater clarity and transparency on the mortgage insurance process — from origination through servicing and claim settlement.”

Radian Guaranty Inc., which is a USMI member, issued a statement indicating that it expects comply with the new requirements during the transition period without having to raise additional capital.

USMI-member Arch Mortgage Insurance Co. indicated in a news release that it already meets the prospective requirements.

David Gansberg, president and CEO of the Walnut Creek, Calif.-based firm, said that Arch welcomes the new standards as a way to ensure that mortgage insurers have adequate financial strength.

In a written statement, National MI CEO Bradley Shuster expressed support for the proposed requirements and said they will help restore confidence in the industry. The company, which is also a USMI member, might submit further comments after further evaluation.

But there are concerns from some USMI members with the proposed requirements.

MGIC said that required liquid assets would far exceed the needed liquidity and claim paying capacity during periods of economic stress.

“If the draft private mortgage insurer eligibility requirements were adopted in the form released for public input, our preliminary assessment is that MGIC’s available assets would be materially less than its minimum required assets,” MGIC said.

The Milwaukee-based insurer said minimum required assets are unnecessarily excessive because future contractual premiums on all policies that are in force are not part of available assets. Another factor is additional assets that would be required to be held for loans as they become delinquent.

Philadelphia-based Radian, which plans to provide more comprehensive feedback during the comment period, said proposed capital requirements are more onerous than its historical default experience suggests would be needed to withstand a severe stress event.

MGIC warns that the proposed requirements will restrict access to credit, increase taxpayer risk and discourage private capital investment.

Radian seemed to agree with MGIC.

“The proposed private mortgage insurer eligibility requirements 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,” Radian said.

MGIC outlined a number of steps it could take to mitigate the shortfall in its available assets, but cautioned that “there can be no assurance that these alternatives would enable us to meet the financial requirements within the transition period.”

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