Archive for October, 2011


It’s official. The Federal Housing Finance Agency (FHFA) unveiled a new, revamped government mortgage refinancing program Monday.

The initiative involves a series of rule changes to the Home Affordable Refinance Program (HARP) to allow more underwater homeowners to reduce their mortgage debt by taking advantage of today’s rock-bottom interest rates.

Mortgages backed by Fannie Mae and Freddie Mac, and originally sold to the GSEs on or before May 31, 2009 are eligible for the program.

Under the revised HARP guidelines, the 125 percent loan-to-value (LTV) ceiling has been eliminated. Previously, only borrowers who owed up to 25 percent more than their home was worth could participate in HARP. That limitation has now been removed. The program will continue to be available to borrowers with LTV ratios above 80 percent.

The new program enhancements address several other key aspects of HARP that industry participants say have restricted its impact, including eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers, as well as allowing mortgage insurers to automatically transfer coverage from the original loan to the new loan.

In addition, Fannie Mae and Freddie Mac have done away with the requirement for a new property appraisal where there is a reliable AVM (automated valuation model) estimate already provided by the GSEs, and they’ve agreed to waive certain representations and warranties on loans refinanced through the program.
Not only are loans eligible for HARP considered “seasoned loans,” but a refinance helps borrowers strengthen their household finances, reducing the risk they pose to the GSEs. Thus, FHFA feels reps and warranties are not necessary for some of these loans.
With Monday’s announcement, the end date for HARP has been extended from June 30, 2012 to December 31, 2013.
The GSEs will release program instructions to lenders by the middle of next month, and FHFA expects some lenders will be ready to accept applications by December 1.

Since HARP was rolled out in early 2009, approximately 1 million homeowners have refinanced their mortgage loans through the program. FHFA estimates that with the revised guidelines, another 1 million will be able to take advantage of the program.
To qualify, borrowers must be current on their mortgage payments, but government officials believe by opening HARP up to more homeowners with higher thresholds of negative equity, it will help to prevent foreclosures by erasing the primary motivation behind strategic defaults.

Economists at the University of Chicago Booth School of Business estimate that roughly 35 percent of mortgage defaults are strategic. Numerous industry studies have found that homeowners who owe significantly more than their home is worth are more likely to throw in the towel and walk away from their mortgage debt even if they have the ability to continue making their payments.

“We anticipate that the package of improvements being made to HARP will reduce the Enterprises credit risk, bring greater stability to mortgage markets, and reduce foreclosure risks,” FHFA stated in its announcement Monday.
Fannie Mae and Freddie Mac also released statements in response to the announcement.

Michael J. Williams, Fannie Mae’s president and CEO, called the program a “welcome development.”
“By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage of the low interest rates,” Williams stated.

Charles E. Haldeman, Jr., CEO of Freddie Mac said, “These changes mark another step on the road to recovery for the nation’s housing market.”

• Tags: FHFA, Foreclosure Prevention, HARP, Making Home Affordable, Mortgage Rates, Negative Equity, Refinance, Treasury, Underwater, Fannie Mae, Freddie Mac •


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PMIC was ordered to stop writing new policies in August
By Inman News
Inman News™
October 27, 2011

PMI Mortgage Insurance Co. — one of the nation’s top three issuers of private mortgage insurers before it was forced to stop writing new policies in August — has been taken over by regulators, who have slashed claim payments and are seeking to place the company in receivership.

Saying growing losses had left the company undercapitalized, the Arizona Department of Insurance on Aug. 19 placed PMIC and PMI Insurance Co. under supervision and ordered the companies to stop writing new mortgage insurance policies in all states.

Fannie Mae and Freddie Mac — which require private mortgage insurance when homebuyers make down payments of less than 20 percent — suspended the companies from their list of approved insurers three days later.

On Thursday, the Department of Insurance obtained a court order authorizing it to take possession of PMIC. Parent company PMI Group Inc. said regulators had instituted a partial claim payment plan under which payments will be reduced to 50 percent, with the remaining amount being deferred as a policyholder claim.

In a complaint, regulators said PMIC had “recently experienced a rapid increase in losses that has adversely affected its solvency and that of its affiliates.”

During the second quarter, the complaint said, PMIC reported net incurred losses of $574 million and net earned premiums of $227 million — a 253 percent loss ratio.

Citing an internal PMI report, Arizona regulators said the situation worsened during the third quarter, with net incurred losses rising to $520 million and earned premiums dropping to $112 million. At negative $213 million, PMI’s “policyholders’ surplus” was below the required minimum of $1.5 million, the complaint said.

Mortgage insurers — including the government-backed Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loan guarantee programs — have been hit by rising claims on policies written during the boom.

After the housing boom went bust, private mortgage insurers tightened underwriting standards and lost market share to FHA and VA loan guarantee programs, which have grown from 20 percent of the market in 2007 to 84 percent last year, according to statistics compiled by Inside Mortgage Finance.

While premium increases and lower claim rates on more recent loans have helped FHA and VA loan guarantee programs rebuild their capital reserves, private mortgage insurers have missed out on much of that business.

PMIC and other PMI subsidiaries wrote $6.7 billion in new insurance last year, down 85 percent from $46.1 billion in 2007. During the same period, “insurance in force” — the dollar amount of insurance issued — remained at about the same level, $102 billion.

PMIC is the second private mortgage insurer to stop writing new policies this year. Republic Mortgage Insurance Co., a smaller player, was forced to stop making new commitments after waivers issued by North Carolina regulators expired Aug. 31.

The nation’s largest private mortgage insurer, MGIC Investment Corp., is operating under similar waivers issued by Wisconsin regulators. But in its latest quarterly report to investors, MGIC said its risk-to-capital ratio was 22.2 to 1, well within the maximum 25-to-1 ratio required by the Wisconsin insurance commissioner.

MGIC, which had $179 billion in insurance in force on 1.1 million mortgages as the end of September, reported a $165 million net loss for the third quarter, up from $51.5 million the same quarter a year ago.

Company officials warned investors that jurisdictions other than Wisconsin, including those that don’t have specific risk-to-capital ratios, could take actions that prevent it from writing new insurance.

In 2009 MGIC entered into an agreement with Fannie Mae allowing its subsidiary, MGIC Indemnity Corp., to insure loans in jurisdictions where MGIC is not able to due to its failure to meet capital requirements. That agreement is good through the end of this year. A similar agreement with Freddie Mac expires next year.

Radian Group, the second-largest private mortgage insurer with $125 billion in insurance in force, said in August that profits on derivative investments helped it turn a $137.1 million second-quarter profit, compared with a $475 million loss during the same quarter a year ago.

The company said its primary mortgage insurance subsidiary, Radian Guaranty Inc., had a risk-to-capital ratio of 19.8-to-1. More recently, on Sept. 19, Radian Group announced it had terminated Radian Guaranty’s chief operating officer and was laying off 7 percent of its mortgage insurance and corporate employees.

If claims on loans made during the boom are forcing some companies out of the private mortgage insurance business, higher premiums, tighter mortgage underwriting standards and lower claim rates could also make the business attractive to new players. Last year, Essent Guaranty Inc., which has backing from JP Morgan Chase, became the first company to enter the business in many years.

Copyright 2011 Inman News

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