The Federal Housing Finance Agency (FHFA) is asking for feedback on the proposed new Private Mortgage Insurer Eligibility Requirements (PMIERs) that were recently drafted by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
The requirements apply only to private mortgage insurers that are currently approved to do business with the GSEs and those seeking approval in the future. The FHFA recently directed the GSEs to update the existing requirements in order to arrive at a clear and comprehensive set of standards.
In a release, the FHFA claims the new, risk-based framework that ensures that approved insurers have a sufficient level of liquid assets from which to pay claims.
The draft requirements also include enhanced operational performance expectations and define remedial actions that would apply should an approved insurer fail to comply with the revised requirements.
The FHFA and the GSEs consulted with various state insurance commissioners and private mortgage insurers in order to arrive at the new requirements, which are, in general, much stricter and more explicit than what is currently in place.
‘Mortgage insurance counterparties must be able to fulfill their intended role of providing private capital, even in adverse market conditions,’ says Mel Watt, director of the FHFA, in the release. ‘FHFA's Strategic Plan calls on Fannie Mae and Freddie Mac to strengthen the requirements for private mortgage insurance companies that do business with them in order to reduce Fannie Mae's and Freddie Mac's overall risk exposure and protect taxpayers.’
Several private mortgage insurers released statements regardingÂ the new proposed requirements shortly after were announced.
‘Radian fully supports the need for strong counterparties to Fannie Mae and Freddie Mac, and the need for well-defined standards against which private mortgage insurers should be measured,’ says Teresa Bryce Bazemore, president of Radian Guaranty. ‘We believe appropriately structured PMIERs will better position our industry to continue serving its critical role in the housing finance market, including providing worthy borrowers with access to homeownership.’
Radian reports that it is one of the private mortgage insurance companies that provided input into the development of the new requirements. Company officials say they will provide additional feedback during the public comment period. In its feedback, Radian plans to ‘note that the proposed capital requirements are more onerous than Radian's historical default experience suggests would be needed to withstand a severe stress event,’ officials said in the release.
The company's comments will also outline how the proposed 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.
‘We look forward to continuing our dialogue with the FHFA and the GSEs as they gather input on the PMIERs,’ Bazemore adds. ‘We are proud of our strong working relationship that was also in place as Radian met all of its obligations during the greatest economic stress in our company's history, paid more than $5 billion in claims, and strengthened our capital levels to support continued low down payment lending.’
Bradley Shuster, CEO of private insurer National MI, also weighed in on the new requirements, saying they ‘will go a long way to help restore confidence in an industry affected by the recent housing crisis.’
‘A strong and financially sustainable private mortgage insurance industry is a key component of a healthy residential mortgage market,’ Shuster says. ‘National MI believes it will be well-positioned to meet the new eligibility requirements when they become effective and to continue serving the needs of mortgage lenders.’
National MI says it will also be providing feedback during the public comment period.
‘We welcome the level playing field created by these new eligibility requirements, and believe that strong, transparent, financial strength requirements will ensure the industry is well-capitalized to take on an increasing role in providing credit enhancement to the housing finance industry as the government seeks to reduce its footprint,’ Shuster adds.
David Gansberg, president and CEO of private insurer Arch MI, says his company also welcomes the new standards, as they are ‘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,’ Gansberg says in a statement. ‘Accordingly, we are well positioned now to meet the needs and counterparty demands of our customers.’
Gina Healy, vice president of mortgage insurance and credit risk for Freddie Mac, says the draft eligibility standards ‘will strengthen counterparty requirements for private mortgage insurance industry that will continue to play a key role as a source of private capital in mortgage markets.’
‘Private mortgage insurance enables Freddie Mac's mission to continuously make affordable mortgages available to America's borrowers,’ Healy says in a statement. ‘We encourage stakeholders to use the 60-day input period to study and provide feedback on the eligibility standards developed by Freddie Mac and Fannie Mae under the direction of the Federal Housing Finance Agency. Freddie Mac is committed to working with the housing industry and other stakeholders to improve America's mortgage finance system to provide borrowers, lenders and investors with greater opportunity, stability and certainty.’
FHFA is requesting public input by Sept. 8. For more, click here.