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Investments

Mortgage insurer ratings safe despite potential FHFA rule changes

S&P: Transition period provides sufficient time

green light

Private mortgage insurers are forecasted to maintain strong ratings in the immediate term, following the Federal Housing Finance Agency’s decision to revise its private mortgage insurance requirements and reduce credit risk to Fannie Mae and Freddie Mac, according to a report from Standard & Poor’s Rating Services.  

“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,” said FHFA Director Mel Watt.

S&P's report noted that its ratings and outlook on the PMI industry reflect an improving macroeconomic environment and housing recovery, robust profitability and lower-risk underlying mortgage credit quality business.

“In addition, we believe that the progressive run-off of high-risk legacy portfolios, along with positive operating performance, will be accretive to capital and will strengthen the PMI sector's capitalization,” the report continued.

The FHFA is currently seeking input on drafting new requirements, and once finalized, the eligibility requirements would become effective 180 days after the publication said. And “approved insurers” who are still not in compliance will be given a transition period of up to two years to fully comply.

However, while S&P said it could potentially lower the ratings on the insurers who do not company with the private mortgage insurer eligibility requirements, in its view, the phase-in period should be sufficient enough for any negatively impacted PMI to comply with the guidelines.  

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