MILWAUKEE, April 17, 2015 /PRNewswire/ -- Today the Federal Housing Finance Agency (FHFA) released the final version of the private mortgage insurer eligibility requirements (PMIERs) that Fannie Mae and Freddie Mac (GSEs) will use to approve private mortgage insurers that provide mortgage insurance on loans acquired by the GSEs. The effective date of the PMIERs is December 31, 2015 and mortgage insurers are required to certify that they are in compliance with the PMIERs by March 1, 2016. The PMIERs require that an insurer have "Available Assets" (generally, only the most liquid assets of an insurer) equal to or greater than "Minimum Required Assets" (which are calculated from tables of factors with several risk dimensions and are subject to a floor amount).
We expect that Mortgage Guaranty Insurance Company (MGIC), which is the principal subsidiary of MGIC Investment Corporation (MTG), will be in compliance with the PMIERs, including their revised financial requirements, when they become effective.
We estimate that as of March 31, 2015, MGIC's Available Assets are approximately $5.12 billion and its Minimum Required Assets are approximately $5.35 billion, resulting in a shortfall of approximately $230 million. Our shortfall estimates are based on our interpretation of the PMIERS and assume that the risk in force and assets of MGIC's MIC subsidiary will be repatriated to MGIC. Our shortfall estimates do not include any benefits from MGIC's existing reinsurance transaction or the anticipated restructure of the existing reinsurance transaction, capital contributions from MTG to MGIC, or the transfer of other assets (including the $45 million referenced to below) from regulated insurance affiliates of MGIC that subject to regulatory approval could increase the Available Assets of MGIC, each of which is discussed below.
As we have previously disclosed, we would not have received full credit under the PMIERs for our existing reinsurance transaction. Therefore, we have reached agreement to restructure that transaction in a way that we believe will result in MGIC receiving the maximum benefit under the PMIERs. The effectiveness of this restructured transaction will be subject to approval by the Wisconsin Office of the Commissioner of Insurance and the GSEs. In addition, in April 2015, we received regulatory approval to transfer $45 million of assets from regulated insurance affiliates of MGIC that will increase the Available Assets of MGIC. Furthermore, we believe a portion of MTG's $491 million of cash and investments at December 31, 2014, may be available for future contribution to MGIC.
Patrick Sinks, CEO of MGIC and MTG, said, "We have worked hard to incorporate into our business model lessons learned from the financial crisis. Hence, we embrace robust risk adjusted capital requirements and support the goal of modernizing the GSEs' private mortgage insurance eligibility requirements. I am pleased that the eligibility requirements, including their financial requirements, have been finalized." He added that, "given the conservative nature of the financial requirements, it is now time to accelerate the discussions regarding proposals that would allow private mortgage insurers to further reduce the risk the GSEs (and taxpayers) currently take. Furthermore we believe that these proposals could also improve access to credit and reduce homeownership costs for consumers."
The foregoing description of the PMIERs that accompanied them is only a summary and is subject to and qualified by the text of the actual documents, which are available on the FHFA's website (www.fhfa.gov).
Forward Looking Statements
This press release contains forward looking statements. Among others, statements regarding the potential impact of the PMIERs or alternatives that MGIC could pursue to achieve compliance with the PMIERs, and statements that include words such as "believe," "anticipate," "will" or "expect," or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was issued. Factors that may negatively impact MGIC's ability to comply with the GSE Financial Requirements on their effective date include the following:
- The GSEs may not approve our restructured reinsurance transaction or they may not allow full credit under the financial requirements in the PMIERs for our restructured reinsurance transaction.
- We may not obtain regulatory approval to transfer assets from MIC to MGIC to the extent we are assuming because regulators project higher losses than we project or require a level of capital be maintained in MIC higher than we are assuming.
- MGIC may not receive additional capital contributions from our holding company due to competing demands on the holding company resources, including for repayment of debt.
- Our future operating results may be negatively impacted by the matters discussed in our risk factors, the location of which is described below. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby increasing our shortfall in Available Assets.
For a more detailed description of the last factor listed in the bullet points above, you should refer to the Risk Factors detailed in our Annual Report on Form 10‑K filed with the SEC on February 27, 2015.
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is a private mortgage insurer with $164.9 billion primary insurance in force covering approximately one million mortgages as of December 31, 2014. MGIC serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.
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SOURCE MGIC Investment Corporation