Fannie Mae mortgage servicers are now free to contact borrowers with private mortgage insurers whose policies are eligible to be cancelled, Federal Housing Finance Agency Director William Pulte said.
But for Bose George, who follows both servicers and mortgage insurers at Keefe, Bruyette & Woods, the uptake by consumers, and thus the impact on the industry, is expected to be modest.
Pulte, who is also chairman of both Fannie Mae and Freddie Mac, made his comments in an X post on Tuesday morning.
Under a federal law, the
Both government-sponsored enterprises require private MI on mortgages over an 80% LTV. The product is a conforming market alternative to the Federal Housing Administration program. Among the differences between the two is that the
"Fannie Mae offers homeowners different paths to end mortgage insurance, including automatic termination at 78% loan-to-value, where the value is based on the home's original value," a statement from the company said. "We currently authorize servicers to reach out proactively to borrowers approaching the MI termination threshold, and now we look forward to working with U.S. Federal Housing (FHFA) to extend that same proactive outreach to borrowers whose homes have appreciated."
Freddie Mac already allows servicers to contact borrowers eligible for cancellation, Pulte pointed out.
"If your Home is worth more, or you have paid the loan down far enough, you should be able to drop EXTRA Mortgage Insurance," Pulte's X post began. "Right now Fannie Mae will not let your loan company call and tell you that you may qualify because your home has gone up in value!"
He said this was crazy and was fixing it by making Fannie follow Freddie's rule by contacting the borrower and walking them through how to cancel their PMI.
"You can stop paying for coverage you do not need and keep the money," the post ended.
Pulte also put out a 3 PM X message stating he directed Fannie Mae to update its guide to mirror the Freddie Mac policy.
In a separate post, he declared the MI companies have "truly
The U.S. Mortgage Insurers, in a statement from Seth Appleton, president, said it supports the work of Pulte and the Trump Administration as a whole to increase housing affordability.
PMI "has become even more affordable in recent years with premium rates declining 25% or more since 2017, driven by robust competition in the market and lower corporate tax rates enacted during President Trump's first term," Appleton said. "Aligning Fannie Mae with Freddie Mac's policy so servicers can proactively reach out to borrowers is an action that we support."
He pointed to USMI data showing private MI saved the average homebuyer $48,000 at the closing table. Furthermore, the Working Families Tax Cuts Act restored the tax deduction for both private and government MI premiums.
KBW estimates that roughly 40% of borrowers have an LTV under 80% based on appraised value and thus have policies which are eligible for cancellation.
"A modest increase in cancellations is not a meaningful negative," George wrote in his flash note. "If there is a one-time increase in cancellations because of this, it would free up capital, which the MIs should be able to use for share repurchases, which is what most companies are already doing with the bulk of their earnings."
For the MIs whose stock is trading near its book value, George says the impact on their earnings per share should be fairly limited.
But if the ultimate goal of Pulte is to increase housing affordability, this does not help, George said.
"By definition this benefit would only be going to borrowers who are already homeowners with significant equity in their homes," he explained. "And because most of these are 2020/2021 loans, the average borrower also likely has a 3% rate and is unlikely to pay off that loan. This could also potentially increase costs to new borrowers over time to reflect the increased political uncertainty for mortgage insurers in terms of calculating mortgage durations."
