Fannie Mae Obtains Insurance on $5 Billion Pool of Mortgages

Fannie Mae obtained insurance on a pool of about $5 billion of mortgages from National Mortgage Insurance Corp. as the government-controlled company seeks to expand its risk-sharing with private firms.

The transaction resulted from a formal bid process to mortgage insurers, the Emeryville, California-based unit of NMI Holdings Inc. said today in an e-mailed statement. The insurer, which began writing policies in April, said that it was selected “based on its favorable terms and conditions, and beneficial risk-share attributes.”

Freddie Mac, the competitor to Fannie Mae that’s also government-controlled, sold $500 million of a new type of debt this month to share its mortgage-default risks with bond investors. That deal was part of an effort to gain insight into how the private sector prices risk and to reduce taxpayers’ exposure to potential losses, Edward DeMarco, acting director of the Federal Housing Finance Agency, said in a statement.

The FHFA, which has overseen the firms since they were seized by the U.S. in 2008, has been directing them to raise how much they charge to guarantee their traditional mortgage bonds and asked each to attempt to share risk this year on $30 billion of home loans. The risk-sharing should take a variety of forms, according to the goals set for the firms’ executives.

While mortgage insurers’ protection on new loans mainly covers debt guaranteed by Fannie Mae and Freddie Mac, the firms typically offer the coverage on a loan-by-loan basis. The insurance is usually paid for by consumers, picked by lenders, and required for debt exceeding 80 percent of a property’s value. The policies cover some or all of foreclosure losses.

The agreement with NMI, struck July 15, was executed to help meet the “FHFA’s 2013 conservatorship scorecard objective,” Washington-based Fannie Mae said in an e-mailed statement. “The effective date of the coverage will be subject to receipt of the applicable regulatory approvals.”

Before it's here, it's on the Bloomberg Terminal.