PMIER changes end of mortgage insurer covid relief

Government-sponsored enterprises end pandemic relief for their private mortgage insurance capital standards and changes how the surplus is calculated.

Since Primary mortgage insurer eligibility requirements were introduced in 2015they have subject to periodic review by Fannie Mae, Freddie Mac and their regulator at the Federal Housing Finance Agency.

“These updates represent a continued commitment to the safety and soundness of businesses by ensuring that their private mortgage insurance counterparties have the financial strength to pay claims in a wide range of economic environments,” FHFA Director Sandra Thompson said in a statement.

These are not the only capital standards that MIs must meet, as several states have some form of risk-based capital or minimum policy position requirements. But during the financial crisis, three private mortgage insurers failed and most others violated those requirements at the state level.

PMIERs were developed to ensure that MIs could pay losses on the conforming mortgages they insure.

to the end of the second trimesterin total, private mortgage insurers held more than $26.8 billion in available PMIER assets, representing a sufficiency rate of 171 percent, said US Mortgage Insurers, an industry trade group that supports the revisions.

“PMIERs are among the most successful housing market reforms introduced since the Great Financial Crisis and are an important component of a strong, resilient and reliable private MI industry that is well positioned to serve low down payment borrowers, mortgage lenders and GSE. , and to protect taxpayers in all economic cycles,” USMI President Seth Appleton said in a statement.

He thanked FHFA and the GSEs for their “constructive engagement” on the changes and looks forward to working with them “in support of our shared goals of promoting access and affordability to the conventional mortgage market for borrowers, ensuring in at the same time the safety and solidity of housing. the financial system.”

The PMIER changes will be phased in from 31 March 2025 and must be fully complied with by 30 September 2026.

Some of the 2021 changes to PMIERs that were made as a result of the pandemic have already expired and these changes will not affect them, a Fannie Mae bulletin on this part of the revisions noted.

The latest guidance fully supersedes the bulletin dated June 30, 2021, which allowed the six insurers to hold less liquidity against repeals from natural disasters also applied to delinquencies related to the coronavirus.

“Effective March 31, 2025, approved insurers must hold required risk-based asset amounts in accordance with PMIER’s standard non-performing loan requirements for any insured loans subject to COVID-19 forbearance plans,” it said Fannie Mae newsletter. This is also true for Freddie Mac.

In effect, this ends the natural disaster 70% haircut to PMIER requirements for any exempt pandemic-related loans.

The second change involves the available assets portion of the PMIER calculation, which also uses the minimum required assets.

The current PMIER rules do not address the risk of an MI’s balance sheet assets that are considered available assets.

The updated standards create a differentiation between bond holdings based on their credit quality and liquidity.

Mortgage insurers will now have limits on the use of assets in the calculation that are backed by residential mortgages or commercial real estate. This is to mitigate the impact if such assets lose value during periods of housing stress, FHFA said.

Effectively, these changes remove certain bonds that are classified as higher risk from being used for available assets, Bruyette & Woods analyst Bose George said in a flash note from Keefe.

All MI companies, with the exception of Arch Capital Group, have issued press releases regarding the changes.

For MGIC, if these changes were effective at the end of the second quarter, available assets of $5.8 billion would decrease by approximately 1%, or $50 million, and its PMIER surplus would be $2.3 billion .

Radian Group’s statement said it did not believe the PMIER updates would require its mortgage insurance unit to adjust its asset allocation to its investment portfolio. Any future changes to the investment portfolio will continue to be made in the ordinary course in pursuit of its investment return objectives.

As of June 30, 2024, Radian Guaranty had approximately $6 billion in available assets with a $2.2 billion cushion.

Changes to the investment rule on a pro forma basis would reduce average assets by approximately $20 million. Completion of the haircut would reduce Radian’s required minimum assets by less than $10 million.

Essent Guaranty’s available assets would be $3.3 billion and PMIER’s adequacy ratio would have been 161% under the new rules, compared to $3.5 billion and 171%, respectively.

National MI ended the second quarter with total available PMIER assets of $2.828 billion and required risk-based assets of $1.652 billion, creating a surplus of $1.176 billion.

With revisions since that date, total available assets would be $2.8 billion and required risk-based assets $1.656 billion, bringing the pro forma excess to $1.144 billion.

Enact, which remains 81 percent owned by former parent Genworth Financial, held about 169 percent of the assets required under current rules, about $2.1 billion above the required thresholds.

With the new PMIER standards, its adequacy ratio would be approximately 153%, with available assets exceeding the new requirements by approximately $1.6 billion.

However, the company completed a repositioning of its investment portfolio this month. Taking this into account, as well as “selected portfolio maturities” through next March, a restated PMIER sufficiency as of June 30 is 160% or $1.8 billion above required assets.

“Enact remains well positioned for continued prudent capital adequacy in excess of these requirements while continuing to execute our capital allocation strategy,” Rohit Gupta, chairman and CEO, said in a press release.

That includes a goal to return between $300 million and $350 million to shareholders in 2024.

Arch Capital provided a statement to National Mortgage News saying that “Arch has historically been able to achieve a conservative PMIER sufficiency ratio and will continue to do so as these changes are phased in.

“Given the amount of our available assets over required assets, Arch MI expects to retain a significant excess in our sufficiency ratio,” the statement said.