WASHINGTON, DC—Mortgage insurers took a mixed view of the Federal Housing Finance Agency‘s proposal Thursday to issue more stringent capital requirements for companies that insure mortgages owned or guaranteed by the GSEs. While Genworth Financial and Essent Group Ltd. were generally supportive of the capital adequacy guidelines in the FHFA’s draft Private Mortgage Insurer Eligibility Requirements, MGIC said in a statement that the minimum required assets under the proposal were “unnecessarily excessive.”
The stated goal of these new guidelines is to “ensure that approved insurers have adequate liquidity and claims-paying capacity during periods of economic stress.” However, MGIC’s view is that “the Draft PMIERs would require insurers to maintain liquid assets far in excess of the amount required to achieve that goal.” In the case of MGIC, the company’s available assets would be “materially less” than the minimum required assets under the new guidelines.
Although Radian CEO S.A. Ibrahim said Thursday that he was confident that his company would not need to raise additional capital to meet the new guidelines, which allow for a two-year phase-in period, he expressed other reservations about them. “We do believe that these proposed requirements, if not modified, have the potential to increase the cost of borrowing for future homebuyers, and could also restrict access to credit,” Ibrahim said Thursday. “This may impact many low- to moderate-income, deserving borrowers, including certain minority groups, who are particularly vulnerable today based on lower credit scores and limited savings for a down payment.”
The charters of both Fannie Mae and Freddie Mac require the GSEs to obtain an acceptable form of credit enhancement, such as private mortgage insurance, for loans they purchase or securitize with loan-to-value ratios of greater than 80%. “Mortgage insurance counterparties must be able to fulfill their intended role of providing private capital, even in adverse market conditions,” FHFA director Mel Watt said Thursday. He said the agency’s strategic plan calls on the GSEs 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.”
FHFA is seeking comments on the draft PMIERs through Sept. 8. The draft has been issued amid renewed calls by lawmakers to do away with the GSEs; GlobeSt.com will have in-depth coverage of the latest initiative on Monday.