Fannie, Freddie Retain MI Dividend Limits, Haircut In Place



Restrictions on private mortgage insurers transferring dividends to their parent company will now remain in place for the rest of the year, and insurers can still apply. haircut 70% as amended by Fannie Mae’s 2021-01 Eligibility Requirements Guide for Private Mortgage Insurer.

According to the latest revision of secondary market capital requirements, the dividend limit has been extended instead of expiring on June 30 as planned. The expiration of the restriction has raised concerns that the decision by FHFA and state-sponsored enterprises to allow MI to hold less capital on bad loans will also be phased out, Bose George, an analyst at Keefe, Bruyette & Woods, said in a note to the announcement.

Requirements for participation in a private mortgage insurance program calculated taking the available assets of the insurer and reducing them with the required risk based assets to measure the airbag. Mandatory assets based on risk assessment include loans in overdue inventories. The pillow can be expressed in both dollars and percentages. Companies under the minimum cushion cannot insure GSE mortgages.

Fannie Mae’s Guide replaces a similar document issued on December 4, 2020. It says the changes were made under FHFA oversight and in coordination with Freddie Mac.

While the dividend restrictions remain in place, subsidiary underwriters of mortgage insurers will be able to channel funds to the holding company without prior GSE approval if PMIER surplus capital exceeds 50% at the end of the third quarter and exceeds 15%. at the end of the year. The abstinence haircut left in place increases the amount of cushioning.

“We view this announcement as positive and should not significantly affect the ability of companies to start paying dividends in the second half of the year,” George said.

According to George’s calculations, Radian will end the third quarter in excess of 50%, while the national MI will be below 41%. For the other two companies it tracks, Essent’s surplus will be 79% and MGIC’s 71%.

By the end of the year, all four companies will surpass the 15% mark.

“There was no specific comment on what happens to the dividend cap at the end of the year,” George said. “Given the rapid decline in Q4 surplus capital requirements (15%) compared to Q3 (50%) and the relatively low absolute surplus level in Q4 (15%), we expect the cap to be fully lifted by the end of the year.”

MGIC does not believe this change will have a material impact on the company given the current level of excess PMIER.

A request for comment from other MIs has not yet been received.


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