Fannie Mae and Freddie Mac have cooperatively crafted an update to their requirements for mortgage insurance on the mortgages they buy, the Federal Housing Finance Agency announced yesterday.
"Updating the mortgage insurance master policy requirements is a significant accomplishment for Fannie Mae and Freddie Mac," said FHFA Acting Director Ed DeMarco. "The new standards update and clarify the responsibilities of insurers, originators and servicers and they enhance the insurance protection provided to Fannie Mae and Freddie Mac, which ultimately benefits taxpayers."
Pending review from insurance regulators in each state, the two secondary mortgage market giants expect that the changed requirements will go into effect sometime in 2014, depending on when each state's regulator's approve the changes, the regulator said.
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In general terms, the changes will require that some of the strategies for loss mitigation that have become widespread during the housing finance crisis be formally made part of master insurance policies going forward. The new requirements will also add specific guidance on time frames for processing claims and guidelines for requests for additional documentation. The new requirements will also address when and how mortgage insurance must be maintained and when it can be revoked.
"Previously a lot of the strategies that people have used to help forestall foreclosures, such as short sales or using a deed in lieu requires arrangements made outside of master insurance policies," explained Fannie Mae spokesman Andrew Wilson. "Now, those approaches will have to be included master policies going forward."
Wilson added that Fannie Mae and Freddie Mac had not been more specific about what might change in master policies because each mortgage insurer has its own master policies and thus will differ. In addition, each mortgage insurer will have to seek the approval of the insurance regulator in each state where it writes policies, Wilson pointed out.
Joel Luebkeman, spokesman for CUNA Mutual Group Mortgage Insurance, characterized the changes as positive and confirmed that CMGMI had been one of the mortgage insurance firms consulted as part of the consolidation process.
"These changes will not bring credit unions additional paperwork or expense, Luebkeman said, adding that the changes should increase the level of transparency in mortgage insurance policies. "Previously, master policies tended to be very opaque," he said and it was sometimes hard for credit unions to understand what they were purchasing. "Now what credit unions are getting will be much more clear so we think it will be a definite positive for credit unions," he added.
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