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Mortgage Insurance

Freddie Gives Lifeline

By Brad Finkelstein

Starting on June 1, Freddie Mac-approved mortgage insurers cannot cede more than 25% of the risk in to a captive reinsurance arrangement with a lender. This will allow them to conserve capital. MI company representatives willing to go on the record said they were in favor of the changes.

In its statement, Freddie Mac said, "the temporary change is intended to allow mortgage insurers to retain more insurance premiums to pay current claims and rebuild their capital base."

An industry insider calls the other part of Freddie Mac's announcement equally important.

With rating downgrades facing many industry participants, the GSE suspended its Type II insurer requirements, which are automatically applicable to mortgage insurers that are downgraded below AA- or Aa3 by the rating agencies. Instead the mortgage insurer must submit a remediation plan within 90 days of the downgrade.

In their comments about Triad Guaranty Corp., analysts at Friedman Billings Ramsey said, "We do take some comfort in Freddie Mac's recent announcement that it will suspend Type II criteria for any mortgage insurers downgraded to single-A. This could help stave off a run-off scenario at the MIs."

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