exigent market circumstances
This way you don’t have to wait until our newsletter comes out in a week, here’s the fine print from our pals at the FEDERAL HOUSING FINANCE AGENCY, and their Fannie Mae and Freddie Mac Refinance Initiatives announced Wednesday:
http://www.fhfa.gov/webfiles/1257/FNFRERefiInitiatives22009.pdf 
It is reasonably clear that this will be beneficial (or at least not a negative) to the MI industry. It will be interesting to see what happens to Lenders who chose to offer an MI alternative, Lender Paid Mortgage Insurance (LPMI), e.g., Countrywide’s Tax Advantage Mortgage Insurance (TAMI).
Many Borrower’s wisely chose LPMI over MI. Although that choice required a higher Note interest rate, the total housing payment was actually lower – largely in part because MI is a non-deductible expense.
This initiative appears inequitable on two fronts. One, if as suggested, there is going to be a standardized rate for the proposed modifications, this initiative will result in Lender’s losing their monthly “rate imbedded insurance premium” for lending at >80% LTV while MI companies continue to profit. Also Borrower’s with MI instead of LPMI will pay more for the exact same modified mortgage since they will still have a monthly insurance premium and those that had LPMI will not.
Looks like yet another great example of ready, fire, aim that government officials so frequently employs.
Comment by Dave — February 23, 2009 @ 1:42 pm
With a crisis every single day Dave, the ‘ready – fire – aim’ folks in Washington DC are having a field day practicing on US!
Comment by Secret! — February 23, 2009 @ 1:47 pm
Hi Dave,
You said;
It is reasonably clear that this will be beneficial (or at least not a negative) to the MI industry.
TO THE CONTRARY… did you actually read the letter from FHFA Director Lockhart?
Read this paragraph again… CAREFULLY….
http://screencast.com/t/smQJ2GhP
He is extorting the MI companies to carry the credit risks on a loan now at 105% LTV, that they are only being paid premiums for when it was financed at perhaps an 85% LTV level.
The default credit risks to the insurer at an 105% underwater-equity level is exponentially greater than the risks at 81-99% LTV. The borrower actualy BENEFITS by walking… “jingle mail” is what its called (dropping the keys on the mailbox for the bank.)
In essence, this “initiative” is asking the insurers to bend over & take the ensuing defaults with a smile, regardless that they are being prohibited from collecting the appropriate premiums (which are state-regulated anyway, by the way… its not like the insurers are engaging in predatory pricing.)
This plan is simply setting up another cascading insurance collapse, which will show up to the public as a “weak industry link” which it is not, in any way at all. Rather, its the government setting up the MI industry as a fall-guy.
As the old saying goes; you can put a shine on a piece of siht (sorry Secret!… had to dodge the language screener ;~)
We are in a declining tide… a natural economic cycle. No amount of government intervention can reverse the natural cycles… they’re simply rearranging chairs on the Titanic… but they can definitely waste good time, effort and money along the way.
Cheers,
Dave Donhoff
Comment by Dave Donhoff — March 1, 2009 @ 4:30 pm
Hi Dave D.,
In fact, I did “actually read the letter from FHFA Director Lockhart.” Albeit, I believe, unlike you, I fully comprehended the totality of the FHFA Chairman’s stance.
Can I suggest that you re-read afresh the Lockhart letter in it’s entirety? Should you still not understand that the MI companies face NO ADDITIONAL EXPOSURE WHATSOEVER, and in fact BENEFIT from lower mortgage rates/monthly payments, I will be happy to point out those transparent realities.
I would be remiss if I didn’t mention that the MI companies are ALREADY at 100%+ LTV on the subject loans in question, regardless of governmental action or inaction. Property values are not static – yesterday’s 85% LTV is ALREADY 100%+ LTV in most areas affected.
Do you REALLY think the government (even the pro-socialistists currently operating therein) would – ABSOLUTELY, UNETHICALLY AND ILLEGALLY – require MI Comapany’s to take unanticapated, uncontracted risk on loans the Government, decides in a vacuum, ex post facto, need to be refinanced?
FYI, I agree with the last paragraph in your initial response.
Regards,
Dave Gray
Comment by Dave Gray — March 2, 2009 @ 11:27 pm