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Fannie Mae and Freddie Mac have issued new capital requirements for private mortgage insurers, which will result in sharp fluctuations in the asset reserves of the operators.
The change that had the most impact was the removal of the credit for future premiums from the calculation of available assets.
Government-sponsored businesses first contacted private mortgage insurers with an initial version of these proposed changes late last year.
Several mortgage insurers then issued warnings about the negative effect that the proposal would have on their capital buffer, although all added that they would be able to remain in compliance with the revised requirements. A larger cushion is a measure of a company's ability to pay loan claims in case of loan.
The new eligibility requirements for private mortgage insurers will come into effect on March 31, 2019.
"Future premiums are not included in the capital of insurance regulation and are not included in the accounting standards.If the updated PMIERs were to include future premiums in available assets while the national authorities n & ### "Not including future premiums, Freddie Mac could be exposed to the risk of legal insolvency and deferred payment obligations," said a FAQ published by the GSE. "Fannie Mae has published a similar FAQ.
If the PMIER 2.0 had been in effect by the end of the second quarter, the MGIC cushion would have been about $ 600 million, compared to the previously announced $ 1 billion. After GSE provided private mortgage insurers with their initial proposal at the end of 2017, MGIC warned that its cushion could be "significantly lower".
PMIERs 2.0 will not affect the plans of its mortgage insurance subsidiary to dividends upstream of the holding company, said MGIC.
"I am delighted that the revised eligibility criteria have been finalized so that we can now give full attention to better access to credit for consumers and reduce GSE credit risk while generating good returns for shareholders. "said Pat Sinks, CEO of MGIC. .
According to a press release from the company, the National Nurse would see her balance sheet improve.
The national IM had a total available assets of $ 653.1 million for the PMIER, compared with $ 587.2 million for the required risk-based assets, which means that it had a surplus of $ 65.9 million at the end of the second quarter.
Under MIPS 2.0, National MI estimated that its total available assets would have been $ 681.3 million and its required risk-based assets would have been $ 593.6 million as at June 30, a pro forma surplus of $ 87.7 million. In July, National MI obtained excess reinsurance coverage of $ 264.3 million through an offering of insurance-related notes. This would bring its PMIER 2.0 cushion to $ 352.2 million if this hedge was included in the June 30 pro forma calculation.
"Under PMIER 2.0, Arch MI's estimated available assets as at June 30, 2018 would continue to exceed required assets," said David Gansberg, President and Chief Executive Officer, in an email. "We do not believe that the proposed changes will have a material impact on our business or a material impact on our capital position as of the expected effective date."
Arch provided no data regarding the size of his cushion.
The new PMIERs also formalize the directives issued by the GSEs after the entry into force of the initial version at the end of 2015.
"Many of the changes to the eligibility standards have already been announced through the PMIERs Guidance," Gina Healy, vice president of credit risk transfer for her single-family business, said in a press release. "Our announcement underscores Freddie Mac's commitment to working with the Federal Housing Finance Agency, mortgage insurers and other housing sector stakeholders to strengthen the housing finance system. "
Updating the eligibility requirements for mortgage insurance greatly helps to reduce risks for Fannie Mae, protect taxpayers and increase the role of the mortgage insurance industry as a source private equity in the mortgage market. "These updated requirements will strengthen the ongoing work with our mortgage insurance partners to help families access affordable mortgage credit."
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