FHFA proposal could end up costing borrowers -- report

by Ryan Smith27 Aug 2014
Proposed new requirements for private mortgage insurers could jack up mortgage costs for thousands of homeowners, according to a new report.

The Federal Housing Finance Agency is drafting new requirements for mortgage insurers who want to do business with Fannie Mae and Freddie Mac, according to a Wall Street Journal report. Currently, borrowers who make down payments of less than 20% are generally required to purchase mortgage insurance from either private companies or the Federal Housing Administration. The FHFA’s new regulations would require that private insurers have the ability to pay claims if loans go bad.

But many mortgage insurance companies say the proposal would force them to raise premiums, according to the Journal. And a new report by Moody’s Analytics and the Urban Institute said the new rules would force the average borrower to pay an extra 0.15 percentage point.

While the report agreed with the overall thrust of the new rules, it said some of the requirements would overburden private insurers.

“A thoughtful effort, these standards should succeed in ensuring that private mortgage insurers are strong counterparties to the government-sponsored enterprises and a much improved bulwark against excessive risk in the system,” the report stated. “Several features of the rules as currently written, however, would likely unnecessarily increase costs and cyclicality in the mortgage and housing markets. With a few modest changes, these flaws can be remedied without sacrificing the considerable benefits of the new standards.”


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