WASHINNGTON (7/28/14)--The Federal Housing Finance Agency (FHFA) is seeking comments on draft requirements for private mortgage insurance (PMI) companies that insure mortgages owned or guaranteed by Fannie Mae and Freddie Mac.
These requirements would apply to private mortgage insurers currently approved to do business with Fannie Mae or Freddie Mac, as well as those who wish to do so 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 and Freddie are required to obtain PMI or another acceptable form of credit enhancement for loans that have loan-to-value ratios of more than 80%. According to the FHFA, PMI from a sound counterparty helps reduce the credit risk exposure to Fannie and Freddie, while shifting the first-loss exposure to the private market from taxpayers.
The updated financial requirements incorporate a new risk-based framework designed to ensure 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 proposed revised requirements.
According to the FHFA, the draft requirements are the result of a multiyear, collaborative process among Fannie, Freddie, state insurance commissioners and private mortgage insurers to produce a comprehensive set of standards.
Comments are due by Sept. 8. Use the resource links below for more information.