PMIER changes end mortgage insurer pandemic relief

The government-sponsored enterprises are ending the pandemic-related relief for their private mortgage insurance capital standards and are modifying how the surplus is calculated.

Since the Primary Mortgage Insurer Eligibility Requirements were introduced in 2015, they have undergone periodic review by Fannie Mae, Freddie Mac and their regulator at the Federal Housing Finance Agency.

“These updates represent an ongoing commitment to the safety and soundness of the Enterprises, ensuring that their private mortgage insurer counterparties have the necessary financial strength to pay claims in a wide range of economic environments,” FHFA Director Sandra Thompson said in a statement.

These are not the only capital standard MIs have to adhere to, as several states have some form of risk-based capital or minimum policy position requirements. But during the Financial Crisis, three private mortgage insurers failed and most of the others were in violation of those state-level requirements.

The PMIERs were developed in order to ensure the MIs could pay claims on the conforming mortgages they insure.

At the end of the second quarter, in aggregate, private mortgage insurers held more than $26.8 billion in PMIERs-available assets, representing a 171% sufficiency ratio, said U.S. Mortgage Insurers, an industry trade group that supports the revisions.

“PMIERs are among the most successful housing market reforms introduced since the Great Financial Crisis and are an important component of a strong, resilient, and reliable private MI industry that is well-positioned to serve low down payment borrowers, mortgage lenders, and the GSEs, and to protect taxpayers in all economic cycles,” USMI President Seth Appleton said in a statement.

He thanked FHFA and the GSEs for their “constructive engagement” on the changes and is looking forward to working with them “in support of our shared objectives of promoting access and affordability to the conventional mortgage market for borrowers while ensuring safety and soundness for the housing finance system.”

The PMIERs changes will be phased in starting on March 31, 2025 and must be fully adhered with by Sept. 30, 2026.

Some of the 2021 amendments to the PMIERs that were made as a result of the pandemic have already expired and these changes will not impact those, a Fannie Mae bulletin on this portion of the revisions noted.

The latest guidance fully replaces the June 30, 2021 bulletin that allowed the six insurers to hold less liquidity against forbearances from natural disasters also applied to coronavirus-related delinquencies.

“Effective March 31, 2025, approved insurers must hold risk-based required asset amounts in accordance with the standard non-performing loan requirements of PMIERs for any insured loans still subject to COVID-19 forbearance plans,” the Fannie Mae bulletin said. This also applies to Freddie Mac.

In effect, that ends the natural disaster 70% haircut to the PMIERs requirements for any pandemic-related forborne loans.

The second change involves the available assets portion of the PMIERs calculation, which also uses minimum required assets.

Current PMIER rules do not address the risk of an MI’s on-balance sheet assets that are considered as available assets.

The updated standards create a differentiation in the haircut between bond holdings based on their credit quality and liquidity.

Mortgage insurers will now have limits on the use of assets in the calculation that are backed by residential mortgages or commercial real estate. This is to mitigate the impact if such assets lose value during periods of housing stress, the FHFA said.

Effectively, these changes eliminate the certain bonds that are classified as higher risk from being used for available assets, a flash note from Keefe, Bruyette & Woods analyst Bose George said.

All of the MI companies, except Arch Capital Group, put out press releases on the changes.

For MGIC, if these changes were effective at the end of the second quarter, available assets of $5.8 billion would decrease by approximately 1% or $50 million, and its PMIERs excess would be $2.3 billion.

Radian Group’s statement said it does not believe the PMIERs updates will require its mortgage insurance unit to adjust its investment portfolio asset allocation. Any future changes to the investment portfolio will continue to be made in the ordinary course in pursuit of its investment return objectives.

As of June 30, 2024, Radian Guaranty had approximately $6 billion in available assets with a cushion of $2.2 billion.

The investment rule changes on a pro forma basis would reduce average assets by approximately $20 million. Ending the haircut would cut Radian’s minimum required assets by less than $10 million.

Essent Guaranty’s available assets would be $3.3 billion and PMIERs sufficiency ratio would have been 161% under the new rules, compared with $3.5 billion and 171%, respectively.

National MI ended the second quarter with PMIERs total available assets of $2.828 billion and risk-based required assets of $1.652 billion, creating a $1.176 billion excess. 

With the revisions as of that date, total available assets would be $2.8 billion and risk-based required assets $1.656 billion, making the pro forma excess $1.144 billion.

Enact, which remains 81% owned by former parent company Genworth Financial, had approximately 169% of the required assets under the current rules, approximately $2.1 billion above the mandated thresholds.

With the new PMIER standards, its sufficiency ratio would be approximately 153%, with available assets exceeding the new requirements by approximately $1.6 billion.

However, the company completed a repositioning of its investment portfolio this month. Taking that, as well as “select portfolio maturities” through next March, a restated PMIERs sufficiency as of June 30 is 160% or $1.8 billion above required assets.

“Enact remains well positioned for continued prudent capital sufficiency in excess of these requirements while continuing to execute on our capital allocation strategy,” said Rohit Gupta, president and CEO, in a press release.

That includes a goal of returning between $300 million to $350 million to shareholders in 2024.

Arch Capital provided a statement to National Mortgage News, which said “Arch has historically managed to a conservative PMIERs sufficiency ratio and will continue to do so as these changes are phased in.

“Given the quantum of our available assets in excess of required assets, Arch MI expects to retain a significant excess in our sufficiency ratio,” the statement said.