QRM Rule Could Hurt Recovery of Private Insurers

Some members of the House Financial Services Committee are concerned the qualified residential mortgage and Basel III capital proposed rules could curtain the recovery of the private mortgage insurance industry.

PMI companies are increasing their share of the mortgage insurance market and they have raised $3 billion in capital in the past 12 months.

California congressmen Ed Royce (R) and Brad Sherman (D) noted that FHA-insured loans are exempt from the QRM risk retention rule and treated favorably under the Basel III capital rule.

However, the capital proposal does not recognize private mortgage insurance as a factor that lowers potential losses in cases of default and privately insured loans are not exempt from the QRM rule.

The net result of these proposals will “steer borrowers to the FHA and further crowd out the private market,” Royce said at a hearing Wednesday.

FHA will continue to dominate the MI market if the rules are adopted as proposed, according to several witnesses.

Radian Guaranty president Teresa Bazemore agreed that the FHA would be the dominant player. The cost of private mortgage insurance will become significantly higher, she testified, “unless the QRM and Basel III rules recognize private MI as a risk mitigator.”

While the GSEs are in conservatorship, Fannie and Freddie MBS are exempt from QRM requirements. So just about all privately insured loans would be exempt as well.