By Dow Jones Business News,
July 10, 2014, 05:57:00 PM EDT
By Tess Stynes
MGIC Investment Corp. ( MTG ) and Radian Group Inc. ( RDN ) criticized proposed standards for private-mortgage insurers
seeking to do business with Fannie Mae ( FNMA ) and Freddie Mac ( FMCC ), claiming the level of liquid assets insurers would
need to hold is excessive.
The preliminary proposal was released by the Federal Housing Finance Agency for public input on Thursday and is
designed to reduce Fannie's and Freddie's exposure to risk during periods of economic stress.
Under the proposed changes, insurers seeking to back loans that are bundled into securities would need to hold liquid
assets of at least 5.6% of their risk exposure.
Companies such as Radian and MGIC typically insure mortgages when a borrower makes a down payment of less than 20%.
Mortgage insurers pay lenders a portion of their losses if homeowners default on their loans.
Radian, MGIC and some other companies remained saddled with money-losing policies sold in the years before the housing
bubble popped, leading to billions of dollars in losses.
For its part, Radian said the proposed capital requirements are "more onerous than Radian's historical default
experience suggests would be needed to withstand a severe stress event."
In a statement, MGIC said it has "worked hard to incorporate into our business model 'lessons learned' from the
financial crisis" and supports the goal of modernizing standards but doesn't think the draft proposals will achieve
MGIC also noted its available assets would be materially less than the minimum standards at the projected date of
implementation and two years afterward based on its preliminary assessment of the draft.
The chief executive of AIG's ( AIG ) United Guaranty mortgage-insurance unit is "pleased" with regulatory moves to
revise the eligibility requirements for the private insurers to deal with Fannie and Freddie. The unit supports the
GSEs' "move from existing reliance on ratings toward a risk-based approach to required capital," said its CEO, Donna
--Leslie Scism contributed to this article.
Write to Tess Stynes at firstname.lastname@example.org
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