PMI could be required on more types of Fannie Mae and Freddie Mac loans

The government-sponsored enterprises often require private mortgage insurance on mortgages with loan-to-value ratios above 80%. The coverage is often deeper than is even required by law and there are hints it could go to a lower LTV.

His first example was requiring private mortgage insurance on more loans guaranteed by the GSEs.

"A traditional way that the Enterprises shared risk with the private sector was through the use of private mortgage insurance," DeMarco said. "Consideration could be given to requiring greater mortgage insurance coverage, but doing so would need to be weighed against the financial condition of individual mortgage insurers."

Where the PMI then goes against the Frank-Dodd rule.

If the FHFA adopted such a policy, it would clash against the current risk-retention proposal. According to a still pending rule proposed by federal regulators, lenders would not have to maintain the credit risk on a mortgage after securitization if the borrower puts 20% down and if other requirements are met as part of the qualified residential mortgage exemption. But no room was made for mortgage insurance under the QRM.

Finally, fees are going up too.

He said the past degree of cross subsidization of certain product types will not be present in a private-dominant model. The FHFA will also take into account local economic conditions and state laws, specifically foreclosure timelines, when pricing the g-fees. Meaning, in places where it is more expensive and longer to foreclose, lenders could see g-fees go up. DeMarco also added that the fee competition between the GSEs would not be appropriate in the future, signaling an alignment of the fees between the two giants.

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Troubles for Mortgage Insurance Companies ... Except United Guaranty

... Rating agency S&P has little faith in mortgage insurers, and has lowered its rating on PMI, Genworth and Old Republic's mortgage insurance units further into junk territory, and said the outlook for the companies was negative. ...

... Old Republic said it has not yet been able to get approval from regulators and the mortgage titans to have its newly-minted unit write insurance, and has warned the new business production could cease, at least temporarily, by the end of this month. ...

... And new rules that will pare back government involvement in the mortgage market and may require banks to keep part of the loans they make on their books for all but the safest loans, will also hurt the insurers.

"New regulatory proposals may cripple mortgage insurers and limit their ability to write the business they badly need to rebuild their capital," said Standard & Poors analyst Ron Joas. ...

... It also has analysts asking questions about a large-scale restructuring of the private mortgage insurance sector, in which stronger companies, with rich parents, could consolidate the smaller or at-risk players.

One of the few mortgage insurers still doing relatively well is AIG's (AIG.N) United Guaranty, which prompted one analyst to ask AIG Chief Executive Bob Benmosche on a conference call whether he was interested in rolling up competitors.

His response is in many ways emblematic of the state the industry finds itself in.

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Private mortgage insurers struggle after US debt downgrade

Private mortgage insurers felt the sting of market uncertainty Monday with Radian and MGIC Corp. falling as much as 20% in morning trading.

The PMI Group (PMI: 0.2756 +8.25%) experienced a jump of more than 15%, but that's after plummeting more than 50% late last week after a downgrade from Standard & Poor's left investors with the chance to pick up stock on the cheap with shares trading as low as 25 cents per share.

PMI fared the worst among mortgage insurers after the company voluntarily reported last week that it's not in compliane with its key state regulator and may at some point be forced to stop writing new business.

Still, mortgage insurers, which were already subjected to concerns over long-term liquidity and their role in the future mortgage finance market, are feeling the impact of the volatile stock market, which continues to worry investors, suggesting a needed recovery in housing to jump-start the mortgage finance market is not in the nation's immediate sights.

Radian Group (RDN: 2.15 -22.10%) fell more than 20% Monday morning before retrenching somewhat. By mid-day shares were down significantly, with the stock in the $2.22 cent-per-share range.

MGIC (MTG: 2.00 -37.11%) plummeted more than 25%, reeling from market volatility, falling well under $3 per share.

Old Republic (ORI: 9.45 -3.28%) fell 3% Monday morning, trading a little over $9 per share.

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Home Private mortgage insurers face uncertainty

When does this spread to the FHA program?

Cracks are again appearing in the foundations of the private mortgage insurance business, as companies that insure home loans with down payments of less than 20 percent for Fannie Mae and Freddie Mac face rising claims and continue to struggle for market share against government-backed FHA and VA programs.

In 2008, the three biggest private mortgage insurers -- MGIC Investment Corp., Radian Group Inc., and PMI Group Inc. -- were all required to submit remediation plans to Fannie and Freddie after ratings agencies downgraded their financial strength ratings.

Today, all of the top private mortgage insurers continue to operate with financial strength ratings that are lower than once required by Fannie and Freddie, and several are struggling to meet minimum capital requirements imposed by state regulators.

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AIG continues to write PMI insurance

Two companies leave, one company enters the PMI market.

NEW YORK, Aug 5 (Reuters) - Bailed-out insurer American International Group plans to hold on to its mortgage insurance business even as the rest of that industry struggles with rising claims, AIG's chief executive said on Friday. Mortgage insurers have been struggling, with losses mounting and capital ratios breaching crucial levels that could keep them from writing new business. For example, PMI Group shares fell 59 percent on Thursday after the company warned its debt-to-capital ratio was more than twice what most states have as an upper limit. But AIG said on Friday it was happy to hold on to United Guaranty, also known as UGC, and that newly reported delinquent loans continued to fall. "It's enhancing whatever we do here," CEO Bob Benmosche said on a conference call with analysts. "For now we see it as a keeper." Benmosche said AIG liked UGC because it gives the company insight into the mortgage market, which helps it evaluate its investments in mortgage-backed securities. Though AIG is largely finished with its post-crisis asset sales, the fate of UGC had been something of a question mark, since it is not considered part of the company's core operations. One thing AIG does not plan to do, though, is to boost UGC by buying up struggling competitors. Benmosche was asked on the conference call if he would be interested in AIG taking part in a reorganization of the mortgage insurance market. "We don't see any need to help anyone else out," he answered.

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S&P downgrades PMI Mortgage Insurance on shutdown risk

This second private mortgage insurance company in two days.  Old Republic yestersday had to stop writing insurance.

After suffering a stock decline of more than 50% Thursday, The PMI Group Inc. (PMI: 0.4101 -53.40%) had to absorb another blow when Standard & Poor’s lowered ratings on the company and its subsidiary PMI Mortgage Insurance Co.

PMI warned Thursday that it may have to stop writing insurance policies in several states because heavy losses have left it with inadequate capital and an excessive risk-to-capital ratio. It suffered the steepest decline among mortgage insurers Thursday when the Dow dove more than 500 points, its biggest drop since December 2008.

The company’s mortgage insurance subsidiary has just $257.8 million in statutory capital, $320.3 million below the minimum set by Arizona law, which regulates the company. And its risk-to-capital ratio is 58.1-to-1, well above the regulatory maximum of 25-to-1. While the firm reported Thursday that it narrowed its second-quarter loss, that wasn't enough to appease investors or ratings agencies.

S&P cut the parent company’s counterparty credit and financial strength ratings to double C from a triple-C negative rating, while lowering the subsidiary to triple-C negative from B negative.

"We believe statutory insolvency is possible by the end of 2011 or in early 2012,” said S&P credit analyst Miles Kaschalk. “Further, we believe PMI could be placed into regulatory supervision or court-ordered receivership by the Arizona Department of Insurance at or before the occurrence of statutory insolvency.”

PMI’s rating outlook is negative, S&P said.

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Fannie and Freddie suspend Old Republic from issusing Private Mortgage Insurance

Freddie Mac and Fannie Mae will no longer purchase for securitization most mortgages insured by Republic Mortgage Insurance and its affiliate RMIC of North Carolina.

RMIC, a subsidiary of Old Republic International, a Chicago-based insurance underwriting company with a market capitalization of $2.6 billion, had been showing signs of financial stress since at least last fall.

The company breached its regulatory risk-to-capital limits as of Sept. 30, 2010, said Fannie Mae in its statement announcing the company’s suspension as an approved mortgage insurer.

While North Carolina regulators had temporarily allowed the company to keep selling insurance, the state’s waivers were due to expire Aug. 31 and there was no sign they would be renewed, said Fannie in explaining its move. Calls to Fannie Mae and Old Republic for comment were not immediately returned.

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