Mortgage Insurers Get More Time than Expected for Master Policies

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Private mortgage insurers will be required to have master policies that meet new guidelines in place by Oct. 1, according to announcements this week from Fannie Mae and Freddie Mac.

The insurance companies had previously anticipated the new industrywide guidelines to be put in place by July, although a formal date had not been announced by the GSEs or their regulator, the Federal Housing Finance Agency.

FHFA did say, however, in a progress report on its 2013 strategic goals that "the new master policies are scheduled to take effect in mid-2014."

"Initially the new master policy was expected to go into effect on July 1," said Pat Mathis, chief risk officer of National MI, in an emailed statement.

The new guidelines for private insurance stem from an FHFA overhaul last December, which required the GSEs to update their requirements for master policies—the insurance contracts between servicers and insurance companies for mortgages sold to the GSEs that have down payments of less than 20%.

At that time, FHFA said in a press release that it anticipated that the new requirements "will go into effect in 2014, pending review and approval by state insurance regulators."

The overhaul was designed, in part, to address issues in the mortgage insurance industry that surfaced during the housing crisis. The updates address standards for revoking an insurance policy, as well as loss mitigation strategies to help struggling homeowners. They also establish timelines for processing claims.

Following the December announcement, most insurance companies began filing their policies with the GSEs, as well as state insurance regulators.

The GSE's announcement of the Oct. 1 effective date comes at an important time for Fannie and Freddie's relationship with the FHFA and the mortgage insurance industry.

The FHFA's inspector general recently called on the agency to increase its oversight of mortgage insurers. The watchdog recommended that the FHFA create an oversight plan to "clearly define policies and procedures used to achieve FHFA objectives concerning [government-sponsored] enterprise use of mortgage insurance as a credit enhancement and risk management tool."

The FHFA said, in response, that it would focus on coordination among internal groups that oversee the insurers, including its Supervision Committee and Conservatorship Governance Committee.

But the FHFA rejected the inspector general's recommendation that it approve all new mortgage insurers—currently a responsibility of the GSEs.

"We continue to believe that the responsibility assess, manage and approve counterparties is the direct responsibility of the enterprises," the agency said.