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The Federal Housing Finance Agency (FHFA) on Wednesday updated its capital requirements for private mortgage insurers and allowed rules established during the COVID-19 pandemic to sunset. Companies will have two years to fully implement the changes.
The U.S. Mortgage Insurers (USMI) commended the updates to the Private Mortgage Insurer Eligibility Requirements (PMIERs), the financial and operational standards for companies that insure loans acquired by Fannie Mae and Freddie Mac. Analysts said that companies are well positioned to implement them.
The implementation will occur in phases starting on March 31, 2025. The requirements are expected to be fully effective on Sept. 30, 2026.
The FHFA explained that the updated standards differentiate bonds based on credit quality and liquidity. They establish limits for assets backed by residential or commercial real estate and mitigate the impact if the assets lose value.
“These updates represent an ongoing commitment to the safety and soundness of the Enterprises, ensuring that their private mortgage insurer counterparties have the necessary financial strength to pay claims in a wide range of economic environments,” FHFA Director Sandra L. Thompson said in a statement.
Analysts at Keefe, Bruyette & Woods (KBW) said that, among the main changes, the updated standards “would eliminate certain bonds deemed as higher risk for available assets and allow the COVID-19 multiplier for delinquent loans to sunset.”
That adjustment had allowed required capital for pandemic-related delinquencies to fall to 30% of what would have been otherwise needed, the analysts said in a report.
The requirement guidance states that, “Effective March 31, 2025, approved insurers must hold risk-based required asset amounts in accordance with the standard non-performing loan requirements of PMIERs for any insured loans still subject to COVID-19 forbearance plans.”
KBW analysts also mentioned that the change is neutral for mortgage insurers’ shares since they showed that their excess capital under the new requirements would be relatively unchanged.
According to the USMI, private mortgage insurers held more than $26.8 billion in available assets through PMIERs as of June 30, representing a 171% sufficiency ratio.
“We thank FHFA Director Thompson and her team, and Fannie Mae and Freddie Mac, for their continued commitment toward PMIERs and our industry, and for their constructive engagement,” USMI president Seth Appleton said in a statement.
“We look forward to continuing to work with FHFA and the GSEs in support of our shared objectives of promoting access and affordability to the conventional mortgage market for borrowers while ensuring safety and soundness for the housing finance system.”
