In a report issued Thursday, the Treasury’s Federal Insurance Office says that oversight of the mortgage insurance industry varies wildly between states.
“Though mortgage insurance coverage is provided nationally, only 16 states impose specific requirements on private mortgage insurers,” the report stated. Fannie Mae and Freddie Mac also established some standards for mortgage insurers, in some case more stringent than state regulations.
But the state requirements and the standards set by Fannie and Freddie have been relaxed in recent years, a result of the housing meltdown.
“As the financial crisis unfolded, mortgage insurers no longer met state or contractual capital requirements. State regulators granted waivers in order to allow mortgage insurers to continue to write new business while (Fannie and Freddie) loosened other standards that were applicable to mortgage insurers.”
The current lack of federal oversights for mortgage insurance, the report posits, might call the health of the entire mortgage market into question.
“The private mortgage insurance sector is interconnected with other aspects of the federal housing finance system and, therefore, is an issue of significant national interest,” the report stated. “…Robust national solvency and business practice standards, with uniform implementation, for mortgage insurers would help foster greater confidence in the solvency and performance of housing finance. To achieve this objective, it is necessary to establish federal oversight of federally developed standards applicable to mortgage insurance.”
The Treasury is recommending the implementation of federal oversight standards for private mortgage insurers.