MIs Riled Up by Amendment

Mortgage insurance companies could lose a ton of business if an amendment proposed by Fannie Mae becomes law, MI sources told Mortgage Servicing News.

According to a draft of possible amendments on pending legislation to restructure oversight of Fannie Mae and Freddie Mac, the two congressionally chartered mortgage giants would be allowed to use "spread accounts" for credit enhancement purposes on mortgages where the loan-to-value ratio is 80% or higher.

One MI official familiar with the issue said the spread accounts contemplated by Fannie Mae would serve as a type of mortgage insurance.

He noted that a few years back, Fannie's regulator, the Office of Federal Housing Enterprise Oversight, told the mortgage giant that it could not use spread accounts for credit enhancement purposes.

The draft on the amendments note that the FHLBs are not subject "to the statutory credit enhancement requirements applicable" to Fannie and Freddie.

The draft suggests the FHLBs should be brought under the same "regime" as Fannie and Freddie, but also leaves the door open to the notion that "all housing GSEs should be authorized to use this form of credit enhancement for business that would qualify under Fannie Mae-Freddie Mac housing goals."

One former MI official told MSN that the language in the suggested amendment "takes the MIs out."

He added that it would not eliminate Fannie's (and Freddie's) need to use MI, but could severely damage the MI industry.

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