Mortgage Insurers Get Reprieve From Freddie Mac
Mortgage insurers typically have to carry an A or higher rating before Freddie Mac will allow them to insure loans that they will purchase. However with the downturn in housing values and the high levels of foreclosures this standard is being missed by many of the mortgage insurers.
Now Freddie Mac has loosened the requirements for the mortgage insurers if they submit a plan to fix the issue. This is a smart move. While Freddie Mac will assume a greater risk in the short term, it will also give the mortgage insurers a chance to get their businesses in better shape without the fear of losing all of their business.
The ratings-downgrade reprieve will be provided to any mortgage insurer that “commits to submitting a complete remediation plan for our review and approval within 90 days of the downgrade,” said Freddie, the smaller of the two main companies set up by the government to help finance mortgages by repackaging loans into new securities. Freddie said it could still “impose additional restrictions.”
Among the mortgage insurance firms which current sit in the A-range is MGIC Investment Corp. Current guidelines at Freddie and fellow housing-finance agency Fannie Mae make it complicated for them to buy loans insured by a mortgage insurer whose ratings hit the A-level. via WSJ.com.
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