Indianapolis–The mortgage guaranty insurance model law is on its way toward a new capital model with the help of the mortgage insurance industry and consulting firm Oliver Wyman.
At the same time, the Federal Housing Finance Agency (FHFA) is working to develop its own standards, while the Government Accountability Office (GAO) has begun its own analysis of the fraught industry, according to NAIC staff at the summer national meeting, being held now in Indianapolis.
All stakeholders are trying to get one framework “we can all agree upon,” said longtime financial regulator Steve Johnson, deputy of the Pennsylvania Insurance Department, during a meeting of the National Association of Insurance Commissioners’ (NAIC) Mortgage Guaranty Insurance Working Group Friday evening.
Indeed, the Joint Forum of the International Association of Insurance Supervisors (IAIS), the Basel Committee on Banking Supervision and the International Organization of Securities Commissions issued a set of recommendations for jurisdictions Aug. 20 that says policymakers should consider requiring mortgage originators and mortgage insurers to align their interests.
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The final report, “Mortgage insurance: market structure, underwriting cycle and policy implications,” discusses various means of aligning financial interests, including partial risk retention and having the banking and insurance supervisors consider jointly collaborating on any sharing mechanisms. “When losses are shared, it is important that claims costs are controlled by the party with the greatest exposure. In most cases, this will be the mortgage insurer,” the paper noted. Of course, the paper also recommends that regulators ensure that mortgage insurers and mortgage originators maintain strong underwriting standards
During the meeting, the private mortgage guaranty industry association updated the NAIC group on work performed so far by Oliver Wyman.
The industry wants a measurement of solvency in the new capital model and wants the model to pass a stress test at least as adverse as the financial crisis that roiled the mortgage insurance industry during the great recession. International standards also may come to bear with capital adequacy tests, as well.
The industry model will be distributed to the working group around the time of the spring national meeting and regulators can discuss it or use it for the amended model law. Earlier this summer, the NAIC Executive Committee ok’d the model law development.