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TH E M REP O RT | 45 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST FHFA Seeks Comments on Private MI Requirements Updated eligibility guidelines for mortgage insurance are a thing of the past. T he Federal Housing Finance Agency (FHFA) released a draft for new eligibility requirements for private mortgage insurers who insure mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac. The agency is seeking comments on the draft and will accept input through September 8. According to their charters, the GSEs must acquire private mortgage insurance for any loans with loan-to-value ratios higher than 80 percent. Private mort- gage insurance companies take a first-loss position and serve as a buffer in order to deflect losses to taxpayers when mortgage loans default. Current eligibility require- ments "do not adequately consid- er liquidity of capital" and "rely primarily upon an acceptable rat- ing by a major rating agency as opposed to specific counterparty risk and financial standards," ac- cording to FHFA. Additionally, the FHFA pointed out neither GSE has up- dated its eligibility requirements in the past several years. Fannie Mae last revised its requirements in 2003, and Freddie Mac's latest revisions took place in 2008. "Updating eligibility require- ments for mortgage insurers is an important part of reducing risk to taxpayers and building a safer, stronger housing finance system for the future," said Andrew Bon Salle, EVP of single-family un- derwriting, pricing, and capital markets at Fannie Mae. The FHFA's proposed draft will align the requirements at both GSEs and address insurers' operational performance and the level of liquid assets available for claim payments. "The draft requirements seek to ensure that mortgage insur- ance companies have sufficient liquidity to pay all claims under a potential future stress scenario, are appropriately capitalized, have strong risk management functions, and can meet new business standards," Bon Salle said. Gina Healy, VP of mortgage insurance and credit risk at Freddie Mac, said with FHFA's request for input, "The draft eligibility standards issued for public input today will strength- en counterparty requirements for private mortgage insurance in- dustry that will continue to play a key role as a source of private capital in mortgage markets." The FHFA is updating private mortgage insurance standards at the GSEs as part of the agency's strategic plan, which aims to reduce taxpayer risk. "Mortgage insurance coun- terparties must be able to fulfill their intended role of providing private capital, even in adverse market conditions," said Mel Watt, director of FHFA. CFPB Clarifies Rule on Mortgage Heirs A new interpretation of the rules makes it easier for inherited homes to stay in the hands of families. T he Consumer Finan- cial Protection Bureau (CFPB) issued guidance in July aimed at mak- ing it easier for surviving family members who have inherited a property due to the death of a loved one to be added to the mortgage, allowing them to seek modification or refinancing. Specifically, the bureau ruled that the heir may be added to the mortgage without triggering the CFPB's "Ability to Repay" rule. "Losing a loved one should not mean also losing your home. Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jump- ing through unnecessary hoops," said CFPB Director Richard Cordray. "This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification." The Ability to Pay Rule took effect in January of 2014 and requires lenders to make a good-faith effort to ensure that the borrower actually has the ability to make payments on the loan that they are applying for. The rule purportedly wards off predatory lending practices. The change allows the lender to recognize the heir as the bor- rower without considering their creditworthiness. The rationale cited by the CFPB is that the change will allow more heirs to stay in their new homes, because it gives them the legitimacy of being a borrower and gives them the same rights that the now- deceased mortgagor previously held. The more legitimate status makes it more likely that the mortgage-holder will grant a modification. The rule does not obligate the lender to add the surviving family member to the mortgage, but allows them leeway to do so when it would prevent the loan from going into default.

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