Fannie, Freddie keep MIs dividend restrictions, haircut in place

Restrictions placed on private mortgage insurers upstreaming dividends to their parent company will now remain until the end of the year and the insurers can still apply a 70% haircut to delinquent loans with a pandemic-related forbearance, according to revisions in Fannie Mae Private Mortgage Insurer Eligibility Requirements Guidance 2021-01.

The dividend restriction was extended instead of expiring on June 30 as scheduled, the latest update to secondary market capital requirements said. Allowing the restriction to lapse created concerns that the FHFA and the government-sponsored enterprises decision permitting the MIs to hold less capital against delinquent loans would be ended as well, said Bose George, a Keefe, Bruyette & Woods analyst, in a note on the announcement.

The Private Mortgage Insurer Eligibility Requirements are calculated by taking an insurer's available assets and reducing that by the risk-based required assets to measure theb cushion. The risk-based required assets include loans in the delinquent inventory. The cushion can be expressed both in dollars and percentage. Companies under the minimum cushion can't insure GSE mortgages.

The Fannie Mae guidance replaces a similar document issued on Dec. 4, 2020. It states the changes were made under the FHFA's oversight and in coordination with Freddie Mac.

While the restrictions on dividends remain in place, the mortgage insurers’ underwriting subsidiaries will be able to upstream funds to the holding company without prior approval from the GSEs if excess PMIERs capital is over 50% at the end of the third quarter and above 15% at year-end. The forbearance haircut staying in place increases the cushion amount.

"We see this announcement as positive, and it should not meaningfully change the ability of the companies to start paying dividends in the back half of the year," George said.

According to George's calculations, Radian would end the third quarter at the 50% excess mark while National MI would be below at 41%. For the other two companies he tracks, Essent's excess would be at 79% and MGIC at 71%.

All four companies would be well above the 15% excess mark at year-end.

"There was no specific comment on what happens to the dividend restriction at year end," George said. "Given the rapid reduction in required excess capital in the fourth quarter (15%) versus the third quarter (50%), and the fairly low absolute level of excess in the fourth quarter (15%), we would expect the restriction to be lifted fully at year-end."

MGIC does not believe the change has a material impact for the company given its current level of PMIERs excess, a spokesperson said.

A request for comment from the other MIs has not yet been returned.