By Tess Stynes
MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN)
criticized proposed standards for private-mortgage insurers seeking
to do business with Fannie Mae (FNMA) and Freddie Mac (FMCC),
claiming the level of liquid assets insurers would need to hold is
excessive.
The preliminary proposal was released by the Federal Housing
Finance Agency for public input on Thursday and is designed to
reduce Fannie's and Freddie's exposure to risk during periods of
economic stress.
Under the proposed changes, insurers seeking to back loans that
are bundled into securities would need to hold liquid assets of at
least 5.6% of their risk exposure.
Companies such as Radian and MGIC typically insure mortgages
when a borrower makes a down payment of less than 20%. Mortgage
insurers pay lenders a portion of their losses if homeowners
default on their loans.
Radian, MGIC and some other companies remained saddled with
money-losing policies sold in the years before the housing bubble
popped, leading to billions of dollars in losses.
For its part, Radian said the proposed capital requirements are
"more onerous than Radian's historical default experience suggests
would be needed to withstand a severe stress event."
In a statement, MGIC said it has "worked hard to incorporate
into our business model 'lessons learned' from the financial
crisis" and supports the goal of modernizing standards but doesn't
think the draft proposals will achieve those goals.
MGIC also noted its available assets would be materially less
than the minimum standards at the projected date of implementation
and two years afterward based on its preliminary assessment of the
draft.
The chief executive of AIG's (AIG) United Guaranty
mortgage-insurance unit is "pleased" with regulatory moves to
revise the eligibility requirements for the private insurers to
deal with Fannie and Freddie. The unit supports the GSEs' "move
from existing reliance on ratings toward a risk-based approach to
required capital," said its CEO, Donna DeMaio.
--Leslie Scism contributed to this article.
Write to Tess Stynes at tess.stynes@wsj.com
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