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Home | Daily Dose | FHFA Proposing New Insurance Requirements
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FHFA Proposing New Insurance Requirements

The Federal Housing Finance Agency (FHFA) put out the call on Thursday for public comment regarding the draft of requirements that would apply to private mortgage insurance companies that insure mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac.

The two GSE’s are required by their charters to maintain utilize risk mitigation techniques for loans that they purchase or securitize that have a loan to value ration greater than 80 percent. Obtaining private mortgage insurance is one of the main tactics employed by the enterprises to limit exposure, imposing a minimum set of standard eligibility requirements for an outside insurance company to meet.

The FHFA has mandated that the enterprises revisit and strengthen their eligibility requirements in the wake of the financial crisis. The agency has opened the issue for public comment and invited stakeholders input into the final regulations.

"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."

The updated financial requirements call for a new risk based framework to ensure that approved insurance carriers have a sufficient amount of liquid assets to pay claims should the need arise.

The new requirements also seek to strengthen organizational operational performance expectations and outline consequences should the company be found to be out of compliance.

The draft requirements allow any insurance company out of compliance two years to amend their procedures to remain eligible.

About Author: Derek Templeton

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Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.

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