Fannie Plays Hardball with PMI Insurers

This story began last summer when the US Treasury announced its rules for the Home Affordable Foreclosure Alternatives Program (HAFA).  To speed up the short sale approval process Treasury wanted Fannie and Freddie to have designated authority over servicers and private mortgage insurance (PMI) providers.  In order for that to happen the servicers and PMI providers had to "sign on".  Treasury could hold a big gun to their heads, "if don't sign on you can't do business with Fannie or Freddie".  But they couldn't make delegated authority mandatory.


With its announcement early this week Fannie dropped the hammer on three PMI providers by suspending them as "approved mortgage insurers".  Per Fannie:

On August 22, 2011, Fannie Mae announced the suspension of PMI Mortgage Insurance Co., PMI Insurance Co., and PMI  Mortgage Assurance Co., as approved mortgage insurers. 

The pool of Fannie-approved PMI providers has now shrunk to three national insurers: Genworth, MGIC and United Guaranty.  Will this limited supply chain result in less flexibility in mortgage underwritng?  Competition usually brings about more competitive products and services.  Limiting competition tends to work the other way.


We'll see.


Links:
Fannie Mae Service Announcement
Acceptable Mortgage Insurers