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Fannie Shifts $5 bln in Taxpayer Risk to Newcomer NMI

by devteam October 11th, 2013 | Share

Fannie Mae checked off another box onrnthe Federal Housing Finance Agencies 2013 Conservatorship Scorecard by recentlyrnsigning an agreement for credit risk coverage for over $5 billion of its singlernfamily mortgages.  The agreement withrnNational Mortgage Insurance Corporation (National MI) provides credit riskrncoverage for certain loans acquired by the company in the fourth quarter ofrn2012 with original loan to value (LTV) ratios between 70 and 80 percent. </p

The terms of the policy, which becamerneffective on September 1, will lower Fannie Mae’s exposure on the loans tornapproximately 50 percent LTV subject to a deductible and aggregate loss limitsrnand will further the score card goals of transferring at least $30 billion ofrnits single-family mortgage risk to private sources of capital.  </p

Emeryville, California based NMIrnis a newcomer in the private mortgage insurance world.  The company, which is heavily staffed byrnformer employees of now-bankrupt PMI group, once the second largest privaternmortgage insurer, was started in 2012 with a $550 million investment from hedgernfunds and mutual funds.  SF Gate has identified Kyle Bass,rnfounder of Hayman Capital as one major investor saying he was principally knownrnfor betting against subprime mortgages. rnNational MI has declined to identify any investors other than Bass.</p

The new company came out of the gaternfast.  In January of this year theyrnbecame only the second private mortgage insurance company since the mortgagernmeltdown to get approval to insure Freddie Mac and Fannie Mae loans.  Borrowers are typically required to obtain arnprivate mortgage insurance policy for the benefit of the lender when a loan’srnLTV is less than 80 percent.   On its website the company says it “brings therncapacity to insure $30 billion in new business and the financial strength thatrncomes from having no legacy risk.”</p

Andrew Bon Salle, executive vicernpresident for underwriting, pricing, and capital markets at Fannie Mae said ofrnthe agreement, “This insurance policy transfers credit risk away fromrntaxpayers, which is an important element of creating a more sustainable housingrnfinance system.  We will continue workingrnwith FHFA to meet the goals of the Conservatorship Scorecard for 2013 to reducernrisk for Fannie Mae and taxpayers.” </p

Fannie Mae says it expects to make additional transactions this year to meetrnits Scorecard goals.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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