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Washington, D.C. – The Federal Housing Finance Agency (FHFA) is seeking input on draft requirements that would apply to private mortgage insurance companies that insure mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac. These requirements would apply only to private mortgage insurers that are currently approved to do business with Fannie Mae or Freddie Mac and those seeking approval in the future.
"Mortgage insurance counterparties must be able to fulfill their intended role of providing private capital, even in adverse market conditions," said FHFA Director Mel Watt. "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."
Fannie Mae and Freddie Mac are required by their charters to obtain an acceptable form of credit enhancement, such as private mortgage insurance, for loans they purchase or securitize that have loan-to-value ratios that exceed 80 percent. Pursuant to this obligation, each Enterprise has maintained eligibility requirements for approved mortgage insurers for many years. Private mortgage insurance from a sound counterparty helps reduce the credit risk exposure to Fannie Mae and Freddie Mac and shifts the first-loss exposure from taxpayers to the private market.
As Conservator, FHFA has directed Fannie Mae and Freddie Mac to revise, expand and align their risk management requirements for mortgage insurance counterparties. The draft Private Mortgage Insurer Eligibility Requirements reflect a multi-year effort to produce a clear and comprehensive set of standards. The updated financial requirements incorporate a 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. FHFA, Fannie Mae and Freddie Mac have consulted with state insurance commissioners and private mortgage insurers that are currently approved to do business with Fannie Mae or Freddie Mac regarding the draft requirements.
FHFA is requesting input for itself and the Enterprises within 60 days or by September 8, 2014. Input should be submitted to the Federal Housing Finance Agency, Division of Housing Mission and Goals, 400 7th Street, SW, Ninth Floor, Washington, DC 20024 Attn: Mortgage Insurance Eligibility Project or via FHFA.gov.
Links:Frequently Asked Questions (links directly to FAQs) Link to Overview and Questions for ConsiderationLink to Draft PMIERsLink to White Paper on FHFA Mortgage Analytics Platform
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The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.5 trillion in funding for the U.S. mortgage markets and financial institutions.
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