FHFA makes decision on g-fees, changes PMI requirements

by MPA20 Apr 2015
The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to change their Private Mortgage Insurer Eligibility Requirements (PMIERs), altering the financial and operational minimums required of approved private mortgage insurers (PMIs). However, the regulator is leaving g-fees largely alone.

The revised eligibility requirements set financial and operational standards that private mortgage insurers must meet to receive approved insurer status with Fannie Mae or Freddie Mac and are designed to reduce risk to the government-sponsored enterprises (GSEs). 

Though they won’t go into official effect until December 31, the revised PMIERs will change the standards that a PMI vendor must meet – and maintain for the life of the business relationship – before they can provide insurance on Fannie Mae- and Freddie Mac-backed loans.

FHFA directed Fannie Mae and Freddie Mac to align and strengthen their risk management requirements for mortgage insurance counterparties.  In July 2014, FHFA sought input on draft private mortgage insurer eligibility requirements.  “The finalized requirements reflect a multi-year effort to produce a clear and comprehensive set of standards that incorporate a new, risk-based framework to ensure that approved insurers have sufficient financial and operational strength to weather an economic downturn,” the FHFA stated.

The agency said Fannie Mae and Freddie Mac are issuing these requirements after they and the FHFA consulted with a range of stakeholders, including state insurance commissioners, private mortgage insurers, consumer advocates and seller/servicers.

"The requirements announced today are prudent steps to align and strengthen Fannie Mae and Freddie Mac's operational and financial requirements for private mortgage insurance companies, which will reduce the Enterprises' overall risk and protect taxpayers," said FHFA Director Melvin Watt.  "Completion of this requirement fulfills a key scorecard item for the enterprises."
U.S. Mortgage Insurers (USMI) said with the PMIERs finalized, the industry is now “positioned to be in the forefront of efforts to meet the important goal of putting more private capital at risk ahead of taxpayers, including by providing upfront risk sharing and deeper MI coverage for the GSEs.”

However, the FHFA said it finds no compelling economic reason to change the general level of fees, according to its review of guarantee fees, but the agency will make certain minor and targeted fee adjustments. The effect will be to slightly lower fees for riskier borrowers, though the FHFA said it is revenue neutral and will therefore be “a wash.” The g-fee changes are effective September 1, 2015.

The agency wants the GSEs to eliminate the adverse market charge put in place in March 2008 and to replace the revenue that resulted from the adverse market charge with targeted increases in guarantee fees to address various risk-based and access-to-credit considerations. In making adjustments to the guarantee fees for certain categories of loans, FHFA took into account its decision to strengthen financial and operational eligibility standards for mortgage insurance companies.

Click here to find out more information about the PMI changes.


Should CFPB have more supervision over credit agencies?