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MoodyÕ: New FHFA rules are credit positive for mortgage insurers

PMIERs remove “significant policy overhang”

Private mortgage insurers, especially legacy insurers, are well positioned for success under the newly announced Private Mortgage Insurer Eligibility Requirements from the Federal Housing Finance Agency.

According to a new report from Moody’s Investors Service, the FHFA’s PMIERs, which set financial and operational standards that private mortgage insurers must meet to receive approved insurer status with Fannie Mae or Freddie Mac, remove a significant policy overhang and ensure adequate capital cushions for mortgage insurers.

And that is a “credit positive” for policyholders, beneficiaries and bondholders of all primary mortgage insurers, Moody’s said.

“Since the 2008-09 financial crisis, all PMIs have been operating under forbearance or a remediation plan with the GSEs,” Moody’s analysts Kevin Lee, Brandan Holmes and Stanislas Rouyer said in the report. “The final rules provide a clear path to compliance and put the mortgage insurance industry on firmer footing, which is credit positive.”

The Moody’s analysts say that they expect all of the Moody’s-rated primary mortgage insurers to achieve compliance by the time the new requirements take effect, Dec. 31, 2015.

According to Moody’s report, Essent Group (ESNT) and Arch Mortgage Insurance have already stated that they are already in compliance. United Guaranty, MGIC Investment Corporation (MTG), Radian Group (RDN), and Genworth (GNW) expect to be compliant by the PMIER effective date.

“We believe that MGIC and Radian may need to tap holding company liquidity or external reinsurance (some of which is already in place) to be compliant by the effective date,” the Moody’s analysts said.

“We believe Genworth may need to access both holding company liquidity and external reinsurance to be compliant by the effective date,” the analysts continued. “While NMI Holdings (NMIH) has stated that it is in compliance with the risk-based requirements, it will likely need to raise additional capital to meet the PMIER minimum required assets of $400 million on the effective date.”

The analysts added that the final PMIERs are “less onerous” than the draft version of the rules, particularly for legacy insurers that insured pre-2009 loans. As a result, the analysts believe that the final rules will put legacy insurers at less of a disadvantage to newer insurers relative to the draft rules.

“Final asset charge factors came down by approximately 10% to 35% for pre-2005 performing loans that have greater than 90% original loan-to-value ratios and by 30% to 50% for 2005-08 performing loans across all credit scores and LTVs, reflecting revised Comprehensive Capital Analysis and Review stress testing on similar risks for banks,” the analysts said.

“Moreover, post-June 2012 loans will benefit from explicit seasoning factors that reduce required assets as loans age, but particularly for loans that season past 36 months,” the analysts continued. “Compared to the draft rules, the final rules will reduce the need for holding company assets to be downstreamed to the operating insurance companies, particularly for MGIC and Radian, which is credit positive for bondholders.”

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