FHFA Proposal Could Force Price Hikes for Mortgage Insurance

On July 23, National Mortgage News published an article titled FHFA Proposal Could Force Price Hikes for Mortgage Insurance.

FHFA Proposal Could Force Price Hikes for Mortgage Insurance

Private mortgage insurers could be forced to raise their prices if Federal Housing Finance Agency’s private mortgage insurer eligibility requirements go into effect as proposed.

The proposal would require all private mortgage insurers to hold more assets (and eventually more capital) on their books to comply.

“If premium rates are not increased, returns in the business will decrease,” explained Mike Zimmerman, who is the senior vice president of investor relations at MGIC Investment Corp. “If a company wants to maintain the same level of returns that they are having today…with these rules, there are only a couple of choices. Either raise premiums or you don’t serve that segment of the market.”

However competitive, pressures between the seven active underwriters could hold back any potential price increases, Zimmerman said.

All the private mortgage insurers say they support the aim of tougher capital requirements. But the specifics of FHFA’s proposal have caused a split between the four stand-alone MIs. One side stand the incumbents MGIC and Radian; on the other, the startups Essent and National MI.

“We’re in favor of robust capital rules. We are not in favor of capital goals that needlessly over-penalize the industry,” said Zimmerman.

Both Essent and National MI support the standards as proposed.

“Updating the [eligibility requirements] is important to the health of the housing finance system in general, and the mortgage insurance industry in particular. We believe that the proposed risk-based capital adequacy framework…is fundamentally sound,” said Mark Casale, the chairman and CEO of Essent in a press release.

As for National MI, the company “believes that the proposed eligibility requirements for private mortgage insurers will go a long way to help restore confidence in an industry affected by the recent housing crisis,” its CEO Brad Shuster said in a press release.

If insurers were to raise prices, the monthly cost would likely become too steep for this product to serve the lower credit score borrowers. Those borrowers could have to turn to the Federal Housing Administration program for mortgage insurance coverage and if that happens, the risk to the taxpayer is increased, Zimmerman said.

That outcome would undermine policymakers’ goal of expanding credit opportunities, Zimmerman noted, a point echoed by others in the industry.

“We’re hoping that the regulators will rethink the rule. I think the rule as it is written makes it difficult for the mortgage insurers to write a lot of business at the lower end of the market, the borrower with FICOs lower than 720,” said Bose George, who is an analyst with Keefe Bruyette and Woods. Others have put the point where the market would be cut off at scores of 700 or 680.

This is the market segment that the Federal Housing Finance Agency has been trying to increase credit availability to. Between this new rule and premium increases for the Federal Housing Administration mortgage insurance program, these potential homebuyers will not be able to enter the market.

The vast majority of new private mortgage insurance being written today is for borrowers with FICOs over 720. The proposal would lock the MIs into only being able to serve that group. It would be hard to broaden the credit box because the MIs would not be able to make an appropriate amount of income from policies to borrowers with lower credit scores, George said.

The management team at Radian Group Inc. in Philadelphia sounded a warning about this possibility.

“For some of the higher loan-to-value ratio and lower FICO loans in order to maintain returns on that business, pricing would have to likely change pretty significantly. As you go up the credit spectrum and get better and better credit loans, lower LTVs, much less change if any would be required,” Radian’s chief financial officer Bob Quint said in a conference call.

As a result, private mortgage insurers, which have been hard at work the past few years trying to regain market share lost to the Federal Housing Administration’s insurance program as well as to piggyback mortgages, could end up having to make price increases to serve this market which would make the product uncompetitive. (A piggyback mortgage is an 80% first mortgage combined with a 10% second mortgage. Because the 10% second is combined with the borrower’s 10% down payment, no mortgage insurance is required.) Reports started surfacing last year that the piggyback has been making a comeback, especially in markets with higher home prices.

It is unlikely that the two stand-alone legacy private mortgage insurance companies will have to turn to the capital markets to raise cash to meet the proposed capital requirements.

FHFA’s initial proposal calls for private mortgage insurers to have liquid assets (also known as available assets) greater than or equal to a minimum required asset level.

That is defined as the greater of “a risk-based standard representing claims from the approved insurer’s book of business forecast to be paid over the remaining life of existing policies under a stress economic scenario,” an FHFA document states; or a minimum of $400 million as a condition of on-going approval.

Even without having to raise more money, the rules will hit MGIC and Radian harder than their competition because they are still dealing with sizable (albeit ever shrinking) inventory of delinquent loans, plus having to make accommodations to meet the requirements going forward, said George.

“We think that both of them can comply without raising capital,” he said, adding that both should also be able to comply without having to cede risk through additional reinsurance policies, although there is a possibility they might have to go that route.

That being said, Mortgage Guaranty Insurance Corp. and Radian Guaranty will be able to meet those requirements as currently stated without needing to raise outside capital, both companies declare.

MGIC’s minimum required assets under the proposal is $5.9 billion. The mortgage insurer has available assets of $5.3 billion, leaving it with a shortfall of $600 million.

By the time the rules are expected to go into effect in 2017 this shortfall is expected to be reduced to $300 million.

MGIC does not have a capital deficiency; it has excess claims paying ability. “We’re not insolvent, we’re not anywhere close to that,” Zimmerman said.

To offset the remaining amount, the company says might be able to draw upon $515 million of cash at the holding company level as well as $100 million in assets from other MGIC Investment Corp. subsidiaries.

The projections include receiving full credit for MGIC’s existing reinsurance approximately $500 million of credit expected at Dec. 31, 2014, increasing to $600 million of credit two years later. But the company is not expecting regulators to give it full credit for this reinsurance. If needed, it will consider obtaining additional reinsurance.

During the conference call, Radian Group CEO S.A. Ibrahim said Radian Asset Assurance, the financial guaranty subsidiary which stopped writing new business in 2008, received permission from New York State regulators to pay a $150 million dividend to Radian Guaranty. It has been paying dividends to the mortgage insurer since 2008 and is expected to continue in the future, Ibrahim said.

But under the proposed standards, “Radian Guaranty’s investment in Radian Asset Assurance is not proposed to be included as an available asset,” Quint added.

Right now, Radian has required assets of $4.8 billion and available assets of $3 billion. Taking into account $800 million of cash at holding company level and the $150 million RAA dividend, the company estimates its shortfall is $850 million.

To help bridge that gap, “we believe that we will be able to convert its future economic value estimated to be in excess of $1 billion consistent with reported statutory capital into available assets in the future,” Quint said. Furthermore, Radian Group recently completed its acquisition of Clayton Holdings, which should also contribute capital to the mortgage insurance unit.

The other two legacy companies, Genworth and United Guaranty are subsidiaries of companies that underwrite other insurance lines (UG’s parent is American International Group), as is the new parent of what was formerly known as CMG. Arch MI acquired the CMG business earlier this year from former owners PMI Group (which had filed for bankruptcy) and CUNA Mutual.

Arch views the new capital standards as a stepping stone to grow its insured portfolio.

As the subsidiary of a Bermuda-based insurance company, Arch MI is already compliant with the proposal, according to David Gansberg, its president and chief executive.

“Arch brings fresh private capital to the industry as well as being an existing company, with operations that have been continually running for 20 years,” he said.

CMG’s business came exclusively from credit unions. Right now, Arch insures nearly 50% of CU originations.

“For the past five months, we have been trying to expand the business over to the mortgage banker side and actively sign up lenders,” said Gansberg.

“We are grateful that we are in compliance with the financial requirements of the PMIERS. We think that makes a strong case to our lender customers that we are a great option for them to do business with.”

When asked if the rules would not impact the company’s ability to compete with Essent, National MI or Arch MI, Zimmerman replied “categorically, no!”

FHFA has asked for comments regarding the proposal, for which MGIC and Radian both state they will make submissions. Based on what has happened with other proposals such as the qualified mortgage and qualified residential mortgage rules, it is very possible the capital requirements could end up looking substantially different than what was first proposed.

There needs to be stricter capital rules for the MIs than there was prior to the mortgage crisis. However, there are ways for FHFA to tailor the rule so it is not so punitive on the lower credit score segment of the market, George said. This includes FHFA revisiting the contingent capital portion of the proposal, which would require insurers to add capital when conditions worsen.

Even so, because the rule is not going into effect until 2017, and those problem books of business should no longer be an issue for the older MIs, the effect should be same on all of the companies, George said.

But with expected lower rates of return, the private mortgage insurance business, which has been very successful (with one notable exception below) raising capital since the end of the bust, could see investors deciding to stay away.

It is also unlikely we will see any more new companies or resurrected existing companies come into the space. Old Republic International tried twice to recapitalize Republic Mortgage Insurance Co. under the existing rules and it was unsuccessful.

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About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.



Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.


Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.


AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.


AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.


AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.


AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.