Written By: Joel Palmer, Op-Ed Writer
Fannie Mae has announced a pilot program that will provide mortgage processors and underwriters the ability to offer borrowers an Enterprise-Paid Mortgage Insurance (EPMI) option.
Under the program announced earlier this month, Fannie will purchase and pay for mortgage insurance on loans with a loan-to-value ratio over 80 percent. Traditionally, borrowers have paid for private mortgage insurance (PMI), though in recent years lenders have also offered programs to cover the cost of PMI.
“This new lender option enables us to streamline the operational requirements of participating lender customers, increase the certainty of coverage for our credit investor partners, and better manage Fannie Mae's counterparty risk,” wrote Rob Schaefer, Fannie Mae vice president of credit enhancement strategy and management.
The EPMI program is similar to Freddie Mac’s Integrated Mortgage Insurance (IMAGIN) program, which was introduced in March. With IMAGIN, Freddie insurers low LTV mortgages using a group of approved insurers and reinsurers managed by Arch Mortgage Risk Transfer, a subsidiary of Arch Capital.
The Fannie EPMI mortgage insurance policy term is 10 years. An exception to that term will be in cases when the loan is delinquent at the end of the term. In those scenarios, the policy will remain in effect until the policy fully cures.
Fannie say EPMI offers a streamlined process for mortgage lenders, processors and underwriters. Fannie will handle the details of acquiring the insurance, fully determining loan eligibility, and filing claims.
Furthermore, participating servicers will have one set of servicing guidelines — Fannie Mae’s guidelines — for loss mitigation offerings, liquidation decisions and related approvals. And the program will not have to offer the claims settlement option to acquire the property, which is permitted under lender-paid and borrower-paid mortgage insurance policies.
Schaefer wrote that loans delivered through the program would be covered under a forward insurance arrangement and secured by Fannie Mae. Insurers will either:
• be approved to write EPMI coverage directly to Fannie, which must then transfer the risk to reinsurers; or
• a traditional mortgage insurer approved by Fannie Mae
“We are initially securing coverage pursuant to the reinsurance structure, testing lender and reinsurance counterparties' receptions to the offering. Over time, additional EPMI participants may include traditional mortgage insurers. Fannie Mae's choice of the EPMI insurance provider will not affect the experience or requirements of participating EPMI lenders, and lenders will generally not know which insurers will be writing coverage to Fannie Mae,” Schaefer wrote.
Fannie has made the pilot roll-out available to “a diverse, representative cross-section of large, medium, and small lenders that span a mix of geographies and business models, including independent mortgage banks, community banks, depositories, and more.”
Schaefer wrote that if the pilot proves successful and a viable market for EPMI materializes, Fannie will look to make the option available to all lenders.
The Mortgage Bankers Association supports the program, and said several of its recommendations were incorporated in the pilot. Those recommendations included using a diverse pool of lenders and adhering to a volume cap. “MBA will work with Fannie Mae and FHFA to evaluate the pilot and help determine the path forward that best enables a robust market for borrowers and lenders.”
Opponents of the proposal, including U.S. Mortgage Insurers (USMI), argue that EPMI programs raise concerns about the GSEs expanding their roles in housing finance. USMI expressed similar concerns when Freddie Mac announced IMAGIN.
USMI, which represents the nation's mortgage insurers, objects to Fannie’s pilot program and Freddie’s IMAGIN program on the basis that they bypass capital and operational standards imposed by private mortgage insurers and enforced by the GSEs.
This “blurring” of the separation between primary and secondary market activities “promotes an unlevel playing field in the private market,” according to USMI.
"From a taxpayer perspective, we believe it is much more appropriate and prudent for dedicated forms of private capital that are available through economic cycles, such as private mortgage insurance, to continue to perform the critical functions of underwriting and assuming first loss credit risk at the loan level,” said Lindsey Johnson, president of USMI.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.