Mortgage insurers can help banks reduce CECL burden: Genworth

Private mortgage insurers can help to ease banks' compliance burden when it comes to the Current Expected Credit Loss accounting standard, an industry executive said.

"From an opportunity perspective, mortgage insurance is an accepted offset of credit enhancement under the CECL framework, so that would be a very good opportunity for the industry," Rohit Gupta, the president and CEO of Genworth's U.S. mortgage insurance business, said during an interview at the Mortgage Bankers Association's National Secondary Market Conference in New York.

Some, including members of Congress, have expressed concerns regarding the effects CECL will have on the smaller depositories.

"For folks who are trying to offset … the negative impacts of CECL, they can buy mortgage insurance to offset that impact," he said.

Banks can get both a capital benefit and a GAAP income benefit from using mortgage insurance to absorb the risk. Mortgage insurance could reduce the size of the provision needed, and reduce the need to update results on a quarterly basis to account for expected losses, Gupta said.

While traditional mortgage insurance policies taken out by borrowers cover loans with lower down payments, there are a couple of different opportunities to add higher-quality loans to an MI's book of business by offering coverage aimed at addressing banks' CECL concerns. "It could be mortgages under an 80% loan-to-value ratio, it could be bank portfolio loans that might not have MI," he said.

Such coverage would likely have to take the form of a pool policy.

Although insurance contracts are not subject to CECL, investment portfolios held by insurance companies, including Genworth, do have to be evaluated for compliance with the accounting standard.