Banks Join MGIC Pushing to Ease Insurer Capital PlanZachary Tracer
Bankers joined loan guarantors in pushing the Federal Housing Finance Agency to ease proposed capital rules for mortgage insurers, saying the plan will make borrowing less affordable for homebuyers unless it’s revised.
The Mortgage Bankers Association and MGIC Investment Corp. suggested changes to rules tied to premiums and the amount of funds required to be held. The firms didn’t call for a wholesale rewrite of the proposed Private Mortgage Insurance Eligibility Requirements, or PMIERs, for firms that do business with Fannie Mae and Freddie Mac.
“The PMIERs could lead to notable increases in mortgage insurance premiums,” the bankers group said in a letter to the regulator. “FHFA should ensure that the PMIERs are implemented in a way that results in little to no increase in the total cost borne by borrowers.”
Today is the deadline for feedback on the FHFA’s proposals on mortgage-insurance requirements and on the fees that Fannie Mae and Freddie Mac charge lenders for the guarantees they provide. FHFA Director Mel Watt is working to scale back the U.S. role in the residential real estate market while ensuring that homes remain affordable.
Mortgage insurance covers costs when borrowers are unable to meet obligations and foreclosure fails to recover losses. The FHFA is seeking to avoid a repeat of the financial crisis, when taxpayer-backed mortgage companies Fannie Mae and Freddie Mac suffered losses as some insurers were unable to honor their commitments. The coverage is typically required when borrowers make down payments of less than 20 percent.
MBA, in a letter dated Sept. 5, also said FHFA should avoid raising the fees that Fannie Mae and Freddie Mac charge lenders to guarantee their loans. That backing is separate from mortgage insurance, and the costs are typically also passed on to borrowers.
The National Association of Realtors said it was concerned that the FHFA proposal could make it more difficult for first-time buyers to afford a home by raising the cost of insurance. In a letter today, the group said the FHFA should monitor the effects of rule changes on the housing market.
FHFA released its insurance proposal in July, calling for stiffer requirements tied to loans made from 2005 to 2008. The regulator also proposed that insurers hold more funds on contracts connected to riskier borrowers. Milwaukee-based MGIC and Radian Group Inc., which endured credit downgrades in 2008 and 2009, have raised more objections to the proposal than Essent Group Ltd., which began selling policies after the financial crisis.
Essent jumped 9 percent to $22.63 at 4:01 p.m. in New York, benefiting investors including George Soros and Goldman Sachs Group Inc. NMI Holdings Inc., which had an initial public offering last year, rallied 3.5 percent. MGIC climbed 3.1 percent and Philadelphia-based Radian advanced 1.9 percent.
In a 72-page document on its website, MGIC called the proposed rules “too blunt a solution,” to shore up the industry. MGIC said firms should be allowed to count as available assets some premiums once they are received, rather than having to wait until they are classified as earned for accounting purposes.
MGIC also said the amount of funds it’s required to hold should decline as loans age, a point echoed by American International Group Inc.’s United Guaranty Corp.
“Generally, the probability of foreclosure of current loans decreases over time as the loan-to-value decreases due to amortization of principal and increases in home prices,” the AIG unit said in a letter today. AIG climbed 0.5 percent.
MGIC has said that it would face a shortfall of about $300 million under the proposed rules when they go into place after a two-year transition period. The firm has said it may use reinsurance and sell debt to cover the gap.