The Federal Housing Finance Agency (FHFA) has recently updated its capital requirements for private mortgage insurers, with a two-year timeline for full implementation. The rules established during the COVID-19 pandemic have been allowed to sunset.
U.S. Mortgage Insurers (USMI) has applauded the updates to the Private Mortgage Insurer Eligibility Requirements (PMIERs), which are the financial and operational standards for companies that insure loans acquired by Fannie Mae and Freddie Mac. Analysts believe that companies are well-prepared to implement these changes.
The phased implementation of the updated standards will begin on March 31, 2025, with full effectiveness expected by Sept. 30, 2026. The FHFA has explained that the new standards distinguish bonds based on credit quality and liquidity, setting limits for assets backed by residential or commercial real estate to mitigate potential value losses.
According to FHFA Director Sandra L. Thompson, these updates demonstrate a commitment to the safety and stability of the Enterprises, ensuring that private mortgage insurers have the necessary financial strength to handle claims in various economic conditions.
Analysts at Keefe, Bruyette & Woods (KBW) have noted that the updated standards will eliminate certain bonds considered higher risk for available assets and discontinue the COVID-19 multiplier for delinquent loans.
KBW analysts also mentioned that the change will have a neutral impact on mortgage insurers’ shares, as their excess capital under the new requirements is expected to remain relatively unchanged.
Private mortgage insurers currently hold over $26.8 billion in available assets through PMIERs as of June 30, representing a sufficiency ratio of 171%, as reported by USMI.
USMI president Seth Appleton expressed gratitude towards FHFA Director Thompson, Fannie Mae, and Freddie Mac for their commitment to PMIERs and the industry, emphasizing the importance of collaboration in promoting access and affordability in the conventional mortgage market while ensuring the safety and soundness of the housing finance system.
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