California Housing Continues on Recovery Track

Author: Tory Barringer July 21, 2014

The California housing market continued on its 2014 trend line in June, picking up from a month prior but remaining subdued compared to last year’s more active market.

According to real estate data site DataQuick, an estimated 39,254 new and resale homes and condos sold statewide throughout California last month, reflecting a 4.0 percent increase from 37,734 in May.

Put against last year’s pace, June sales fell short 4.3 percent.

California home sales in the month of June have varied from a low of 35,202 in 2008 to a high of 76,669 in 2004, DataQuick reports. The long-run average of June sales since 1988 is 48,929—nearly 20 percent higher than last month’s number.

“California sales have not been above average for any particular month in more than eight years,” DataQuick said.

The median price paid for a home in California last month was $393,000, an increase of 1.8 percent from May and 11.6 percent year-over-year. It was the highest median for any month since December 2007, when prices dropped to $402,000 from a peak of $484,000 earlier that year.

Median prices in California eventually slid to a trough of $221,000 in April 2009.

In other state housing market news, DataQuick reported the typical monthly mortgage payment that buyers committed themselves to was $1,530, up from $1,508 a month prior.

Adjusted for inflation, June’s typical payment was 35.1 percent below that in spring 1989—the peak of the prior real estate cycle—and 47.4 percent below the current cycle’s peak in June 2006.

Meanwhile, market stress indicators remain in decline, DataQuick reported: “Foreclosure activity remains well below year-ago and peak levels reached in the last five years. Financing with multiple mortgages is low, while down payment sizes are stable.”


Hearing entitled “Assessing the Impact of the Dodd-Frank Act Four Years Later”
Wednesday, July 23, 2014 10:00 AM in 2128 Rayburn HOB
Full Committee

Click here for the Committee Memorandum

Witness List

  • The Honorable Barney Frank, former Chairman, House Committee on Financial Services
  • Mr. Anthony J. Carfang, Partner, Treasury Strategies, Inc.
  • Mr. Thomas C. Deas, Vice President & Treasurer, FMC Corporation, on behalf of the Coalition for Derivatives End-Users
  • Mr. Paul H. Kupiec, Resident Scholar, American Enterprise Institute
  • Mr. Dale K. Wilson, Chairman, President, and Chief Executive Officer, First State Bank

Monday, July 21, 2014

What an incredible week! For those of you who did not attend, I will give you a quick recap of what happened at the Summer Convention. The buzz throughout the convention was that we had one of the best speaker line ups in a long time. We started the day with Maria Nemeth (sponsored by Sierra Pacifica Mortgage) who spoke about trust and learning how your customers actually view you; then Carl White from the Mortgage Marketing Animals shared so many ideas that he needed a second session which was held on Friday; Rene Rodriguez talked about how we can grow our businesses as we embrace change; and finally Kevin Hall talked about the power of words can help you take control and master your life. Some other things you missed….Donald Frommeyer gave an update of all the things that NAMB is working on for our industry. They had a great meeting last week with the CFPB. There is much that the CFPB does not know about our industry and they will be turning the NAMB for guidance. The Real Estate Commissioner from the Bureau of Real Estate was on hand to swear in the new Executive Board. It is my pleasure to introduce them: George Duarte – Immediate Past President; Nick Barayuga – Vice President, Membership; Scott Griffin – Vice President – Government Affairs; Cathy Warshawshy – Treasurer; Brian Weide – Secretary and Anthony Lombardo – President Elect. In addition to the Carl White breakout session on Friday, we were able to knock out our NMLS CE training with Ginger Bell and Theresa Ballard. Thank you to the guest teachers Fred Kreger and Robin Manchas. It was a great class.

We had a fabulous silent auction, with a few live items that we were able to auction off and a 50/50 raffle to raise funds for PAC. Thank you to Scott Griffin and Don Frommeyer for your hard work on that! The Chapters were in a race to see who could donate more (this included individual donations from attendees). Congratulations and Thank you to Silicon Valley having the highest donation!

And of course, there was karaoke.  We discovered that not only does CAMP have some exceptional MLO’s, but we also have some incredible singers and performers.  Our own Kristie Bertolo proved that she can work a room with the best of them.  My only regret was that I was not there to witness our Immediate Past President, George Duarte, perform a Frank Sinatra classic in true Sinatra style.

I want to congratulate the 2014 Award Winners: Chris Salazar Mortgage Professional of the Year – Dawn E. Cychner; Associate of the Year – Donna Aldrich; Individual Affiliate of the Year – Terri Buckman; Corporate Affiliate of the Year  - American Pacific Mortgage; Chapter Achievement Award – Greater Sacramento Area Chapter and recipients of the President’s special recognition award were Nick Barayuga, Audrey Boissonou and Scott Griffin. Thank you for all your hard work and dedication to our industry.

Perhaps my favorite part of the event was to be able to share this letter from Congressman Gary Miller. There are many people who question whether or not we are making a difference and I encourage you to continue reading to realize just how much of a difference we are making!


Dear CAMP members,

I commend you for taking time out of your busy lives to join together as a group at your Summer Convention to focus on ways to bolster the housing market. CAMP has been a valuable voice in Washington and the preservation of reasonable access to the American dream of homeownership.

As you know, this has been a fragile time for housing sales. In addition to weak job growth and slow economic recovery across the nation, government at all levels has been creating new hurdles for the housing market. These hurdles have come in the form of new regulations that make it harder for people to qualify for mortgages. Increasing property tax rates and loan limit decreases have also negatively impacted home sales.

While I am retiring at the end of this term, I encourage you to keep up the fight for homeownership in America. This is a challenging time in Washington and it is important for you to continue to stand up for strong communities and the ability of Americans to obtain mortgage credit and become homeowners. In addition, it is absolutely critical that you continue to fight to preserve the mortgage interest deduction. It is also vital that you are in integral part of the discussion that is taking place in Washington about reforming our nation’s housing finance system.

Thank you for the opportunity to be your champion for homeownership in Congress. I have appreciated the open dialogue and support from CAMP to ensure Congress does what is best for homeownership in America. I look forward to continuing to work with you this year to overturn unnecessary federal regulations and overreach that are harming the housing recovery.


Congressman Gary Miller


There is so much more to talk about but I will leave you with this thought….If you were not able to attend our conference this year, you missed a great one. We will be moving back south for our Sales and Marketing Conference in February.


Michelle Velez, Incoming President

California Association of Mortgage Professionals  I


Monday, July 21

This has really been a very good week for NAMB—The Association of Mortgage Professionals. On Tuesday, NAMB Government Affairs Chair Rick Bettencourt, President-Elect John Councilman, Lobbyist Roy DeLoach and I went to Washington, D.C. and had a very productive meeting with the Consumer Financial Protection Bureau (CFPB) on a number of topics, including the newly released guidelines on mini-correspondents. NAMB does have a lot of questions on the mini-correspondent issue, and we will be meeting with the CFPB at a later date to go over these items in-depth. Please continue to pay attention to the Government Affairs Alerts to keep you up-to-date on all of these issues and much more from the regulatory front. You can also see our videos on the NAMB Web site,, about this trip to D.C.

On Wednesday, I flew to Sacramento, Calif. to attend the California Association of Mortgage Professionals (CAMP) State Leadership Conference. The association’s new President Michele Velez had her Executive Board Leadership Meeting with all of the CAMP Statewide Chapters, and her board and I must admit, this state is a very active state. I had a few minutes to update them on our trip to Washington, D.C. and the upcoming NAMB National Conference.

CAMP’s Conference was packed with great speakers. Maria Nemeth spoke about “The Energy of Money,” discussing instilling trust into the customer and being grateful for them as customers and people. Carl White was next, and I have to admit, this was the first time that I have seen him in person. Carl talked about listening to the “little guy on your shoulder” to help make your decisions. When you are about to follow what you want to do and this little guy starts talking to you, just flick him off of your shoulder and move forward. Great job Carl. Rene Rodriguez from was next and discussed the new agreement his company has made with the NMLS to get the entire database of originators put into their program. This is very neat because you will soon go looking on their Web site to see what kind of rating and personal references you are getting from your realtors and customers. This is a really neat concept based on looking for reviews to go to hotels, motels, car rental companies, etc. I think that this is going to be important to all of us in the near future. Go to and register for this unique opportunity today.
The last speaker was someone that I have never seen or heard, and I am telling you, he is a dynamic speaker and I am hooked. Kevin Hall, author of the book Aspire, talked about words and their importance in your life, the desire to be a better person, and the effect to make yourself better. I was truly impressed and even bought his book. I think that everyone, including me, are always looking to improve their well-being and humility. Some of the greatest 60 minutes I have ever spent. Thanks for giving me this outlook to move forward and knowing that I have the PASSION for NAMB in my life.
I announced earlier this week that I am forming an 18-month Mentoring Program at NAMB for upcoming potential presidents of the association. I hope to make this an ongoing committee in the future. I will be including all of the Executive Board members in this project in an effort to make sure our future presidents are prepared for what is coming in the future and to provide them the insight and communication skills needed to succeed in the role of NAMB president. I will also begin a similar program for state leaders that will help them with their states at the local level and for them to become future Board members of NAMB. I will have more about this program for the states out very soon, or at NAMB National in September in Las Vegas.
NAMB National is accepting registrations and room reservations for the conference now. Go to now and get the process started. The room cost at The Luxor is one of the lowest we have ever been able to offer. Friday and Saturday nights are $115 per night, and Sunday and Monday are $50 per night. Please make sure that you use your special code from the vendors to get your free registration. If you have not received one, visit, look at the exhibitors and call your local rep to get one. No sense in paying for your registration if the lender will do it for you.
I will actually not be traveling for the next two weeks, trying to get to loans in my pipeline. I really want to thank all of the state leaders who have gone out of their way to make me feel welcome in your respective states. It is really appreciated, and I thank you all.
The week of Aug. 4, I will be going to Seattle for the American Association of Residential Mortgage Regulators (AARMR) Conference, finishing that week in New Orleans for the Louisiana Mortgage Lenders Association (LMLA) Education Conference. If you need your continuing education for this year and you are going to be near New Orleans, sign up. David Luna is teaching the class, and as you all know, he has a great teaching method and you can get some great information from him. Visit today to get signed up.
I want to thank all of you for everything that you as members are doing to make NAMB a successful organization. I am truly grateful to all of you for your belief in me and in our Board. For that I thank you.

Until next week!!!

Donald J. Frommeyer, CRMS, President
NAMB—The Association of Mortgage Professionals


To:     All Members

Don Frommeyer, Rick Bettencourt and Roy Deloach are in Washington today for a meeting with the CFPB. I wanted the members to have this quick update. Please click here for the link. There will be further updates on the meeting from our Government Affairs Committee.

Best Regards,

Donald J. Frommeyer, CRMS


California to Get $100 Million-Plus in Historic Citi Settlement

Mon, 2014-07-14 16:33 — NationalMortgag…

California State Attorney General Kamala D. Harris, along with the U.S. Department of Justice and state partners, have announced a settlement with Citigroup Inc. to resolve federal and state civil claims related to Citigroup’s conduct in the packaging, securitization, marketing, sale, and issuance of residential mortgage-backed securities prior to Jan. 1, 2009.

Nationally, the settlement totals $7 billion. California will recover $102,700,000 in damages, which will reimburse the state’s pension funds, CalPERS and CalSTRS, for losses on investments in mortgage-backed securities of Citigroup and its affiliates. California is also guaranteed at least $90 million in consumer relief.

“Citigroup misled consumers and profited by providing California’s pension funds with incomplete information about mortgage investments,” Attorney General Harris said. “This settlement holds Citi accountable and compensates the state’s pension funds that protect the retirement savings of hardworking Californians.”

As part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public, including investors, about the mortgage loans it securitized in residential mortgage-backed securities. The resolution also requires Citigroup to provide relief to underwater homeowners, distressed borrowers, and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas. The settlement does not absolve Citigroup or its employees from facing any possible criminal charges.

An investigation conducted by Attorney General Harris showed that offering documents for the securities failed to accurately disclose the true characteristics of many of the underlying mortgages, and that due diligence to weed out poor quality loans had not been adequately performed.

As part of the settlement, Citigroup will provide $2.5 billion in relief to aid consumers across the country, including Californians, in the form of principal forgiveness, loan modifications, donations to housing and legal assistance nonprofits and efforts to reduce blight. $4.5 billion will be paid to settle federal and state civil claims.

The settlement related to California’s pension funds arises from the investigation into mortgage-backed securities by Attorney General Harris’s Mortgage Fraud Strike Force, which was formed in May 2011 to comprehensively investigate misconduct in the mortgage industry. The Attorney General’s additional efforts to investigate the mortgage crisis include securing an estimated $20 billion for California in the National Mortgage Settlement and sponsoring the California Homeowner Bill of Rights, a package of laws instituting permanent mortgage-related reforms.

In November of last year, Attorney General Harris announced a $300 million settlement with J.P. Morgan Chase & Co. over its misrepresentations in residential mortgage-backed securities sold to CalPERS and CalSTRS.


Monday, July 14

I would like to thank Louisiana for their Southern Hospitality this past week. It was great to see Mike Anderson again and hear about what is going on in the south. Miss you Mike…

I had a chance to spend some time listening to Rene Rodriguez, CEO of He had a lot to say about reviews and building trust with customers and I was very impressed with what he had to is based on the consumer reviews that you get on each of your deals. That way when a customer goes looking for an originator, he can look up the status of a rating and see how overall the service that the originator is giving. Just like rating web sites for hotels and events that you look at if you want to get an idea of how the experience was with them. I think that this will be a potential game changer in the way that people will look for someone who will be able to help them in the future. Go to and see what they can do for you. Oh and by the way, Better Loan Officers is a NAMB+ Endorsed Provider, which is a benefit to all of our membership.

One of the things that I have noticed in a lot of the periodicals that I have been reading is a remarkable reduction in small business that do mortgages. This is unacceptable to me and I will be setting up a Task Force to delve into this and prepare a report to present to the Small Business Administration in Washington. This may take a few months, but I am sure that incoming NAMB President, John Councilman will continue this task force as it is necessary to make sure we address this problem.

As I am writing this, I just received notice of a CFPB release concerning the MINI-COR status of Mortgage Brokers that went this way with their offices. NAMB released a notice to all members with the information on where to find this release for you all to read. The Government Affairs Committee will be working over the weekend to let you know more on Monday or Tuesday. We will put out another GA release to let you know and keep you informed, so be on the lookout for updates.

The Board has been working hard on some changes to the website to make it more user friendly and to keep you better informed. We will soon be putting videos back on the front page and inside the website to keep you informed better from the committee side of things. We are about to launch the NAMB+ website very soon. This is our For Profit side that brings values to your NAMB membership in the term of dollar savings on products and services that you can use every day to make your life easier and better for you. Stay tuned and John Stevens, President of NAMB+ will be doing a release shortly to let you know that it is active. Remember to avail yourself of these NAMB+Endorsed Providers and their programs and discounts you must be an NAMB member!

I do have some bad news for those of you that have used the Lowe’s coupon for your customers over the past 10 years. Lowe’s has informed us that this program will be ending on July 31, 2014 and will no longer be available. We will be removing it then, but in the meantime, you can go use it and give it to a customer now, but tell them that they must use it now and not wait for a period of time. Our relationship with Lowe’s has been very good and I personally want to thank them for this support for all of these years. I will be working with them to try to get some kind of new program to offer to members soon, so stay tuned.

I will be attending the California State conference this week so I will report on it next week.

One final thing, make sure that you go on and get your registration and rooms for the NAMB National Conference on September 13-15. 2014 now. We have had a great response from members already and we are about 1/3 through our hotel block as of Friday, so do not wait. The rooms for this are very inexpensive. Friday and Saturday are $115.00 per night and Sunday and Monday are $50.00. These are really great rates and we have worked really hard to keep the costs down. Remember also that this is NAMB’s 40th Anniversary Party and you will not want to miss it. We will be having great speakers, great breakouts and great information. Go to and use your code you receive from the sponsors and exhibitors to register for free.

I want to thank all of you for everything that you as members are doing to make this association successful. We have increased membership by almost 500 people since January. We really need to grow faster, so if you know someone that is not a member, sign them up today. I am truly grateful to all of you for your support. Thank you.

Until next week!!!

Donald J. Frommeyer, CRMS, President
NAMB—The Association of Mortgage Professionals


Monday, July 14, 2014

Time seems to be going by quickly. We are already coming to the third week of July and you know what that means….We’re going to Thunder Valley Casino! I’m looking forward to seeing many old friends and meeting new friends at the CAMP Summer Conference this week. Did I mention we have an amazing line up of speakers? You will be able to hear Maria Nemeth, Author of “The Energy of Money”, Carl White, Mortgage Marketing Animals , Rene Rodriguez,, and Kevin Hall, Author of “Aspire.”  This is our first time in many years meeting at a casino and perhaps you don’t gamble and you are wondering what you can do with your free time…how about Karaoke? We are going to have our PAC fundraiser on Thursday night. Remember, you can pay to have someone sing and if they don’t want to, they can pay to opt out….and yes, you can pay to have someone stop singing! We also have the PAC Silent Auction at the reception Thursday afternoon.


Brokers, are you working as a mini correspondent? I don’t know if you saw the CAMP blog last Friday but in case you missed it you need to know that the CFPB has issued guidance for brokers shifting to the mini correspondence model. The CFPB is concerned that some mortgage brokers may be moving towards the mini-correspondent model under the mistaken belief that identifying themselves as such would automatically exempt them from important consumer protection rules affecting broker compensation. The guidance sets out how the Bureau evaluates mortgage transactions involving mini-correspondent lenders. It confirms who must comply with the broker compensation rules, regardless of how they may describe their business structure. In other words, you still must comply with the same guidelines as you would if you brokered your loan through a normal wholesale channel. Click here to read the full story:

CALL TO ACTION! NAMB is looking for our input…there is a quick survey that needs to be completed (won’t take more than a few minutes to complete) and maybe it will have an impact on being able to contribute closing costs to borrowers. Last year, the Government Affairs team at NAMB conducted a survey of mortgage professionals to determine the amount closing cost credits given back to consumers at closing. The data overwhelmingly showed that in 2012, mortgage brokerages gave millions of dollars to consumers to help cover closing costs. The data helped the mortgage industry get some very positive press and turn some heads in DC. They are now conducting the same survey for 2013. Please fill out the short 5 question survey and help NAMB help you. Click here to complete the survey:

Have you signed up for our blog? In case you missed it, earlier this week it was reported that HARP will be extended until 2016. At the end of June, U.S. Treasury Secretary Jacob Lew announced several initiatives designed to spur the flailing housing market, including the extension of the Making Home Affordable program until at least Dec. 31, 2016. All signs are pointing that the FHFA will align the HARP expiration with the HAMP expiration just as they did in 2013 when the programs were extended last. If you want to sign up for the Blog, go to

Legislative update:

Last week I reported that the Governor signed SB 1459. Well, this week California Senate Bill 1459 was signed into law and will take effect January 1st since it wasn’t urgency legislation.  It only affects licensees under the CA Department of Business Oversight (formerly the Department of Corporations).  It requires licensees under a Finance Lender or a Residential Mortgage Lender to take 2 hours of California law and regulations in the 20 hours of PE and 1 hour of California law and regulations in the 8 hours of CE.  It also adopts the UST (although the bill language doesn’t specify it by name).  There could be a big problem with the bill language on retesting.  It states candidates can RETAKE the test 3 times before waiting 6 months to take it again, which is contrary to HUD’s rule.

My contacts from CAR have been reporting that SB 391The California Homes and Jobs Act of 2013 has finally died. As many of you remember, this is the bill that was introduced which will charge a $75 fee per document that was recorded. The funds were supposed to go to Affordable Housing.

If anyone has a meeting or event that they would like me to share in the Monday Morning Messenger, please send me the info. I plan to attend at least one event per chapter this year. I might even drag our Immediate Past President, George Duarte with me.

If you have any comments or questions, please email me at
Looking forward to seeing you later this week!


Michelle Velez, Incoming President

California Association of Mortgage Professionals  I



July 11, 2014


WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) is issuing guidance regarding mortgage brokers transitioning to a “mini-correspondent” lender model. The CFPB is concerned that some mortgage brokers may be shifting to the mini-correspondent model under the mistaken belief that identifying themselves as such would automatically exempt them from important consumer protection rules affecting broker compensation. The guidance sets out how the Bureau evaluates mortgage transactions involving mini-correspondent lenders. It confirms who must comply with the broker compensation rules, regardless of how they may describe their business structure.

“Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer’s interest,” said CFPB Director Richard Cordray. “The CFPB’s rules on mortgage broker compensation are intended to protect consumers from this type of abuse. Today we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”

The policy guidance is available at:

Mortgage brokers connect borrowers with lenders who underwrite and fund loans. In contrast, a correspondent lender, as generally understood in the mortgage industry, processes applications, provides legally required disclosures, frequently underwrites the loans, makes the final credit approval decision, funds the loans, and sells them to investors.

In January 2014, new CFPB mortgage rules took effect protecting homebuyers from risky lending practices. Building upon regulations issued by the Federal Reserve Board in 2010, the rules provide important consumer protections by prohibiting financial incentives for brokers to push borrowers toward risky loans. They also require lenders to include mortgage broker compensation in calculations determining whether a loan meets certain consumer protection standards.

The CFPB is concerned that some mortgage brokers may be setting up arrangements with investors in which the broker claims to be a “mini-correspondent lender,” when in fact the broker is still essentially just facilitating a transaction between a borrower and a lender. While some brokers may be setting up such arrangements because they intend to grow into full correspondent lenders, the Bureau is concerned that other brokers may simply be attempting to evade consumer protection rules. Today’s guidance confirms that mortgage brokers who merely choose to describe themselves as mini-correspondent lenders are not automatically exempt from applicable consumer protection requirements.

The guidance sets out some of the questions the CFPB may consider in evaluating mortgage transactions involving mini-correspondent lenders in order to understand their true nature. This evaluation involves examining how the mini-correspondent lender is structured and operating, for example: whether it is continuing to broker loans; its sources of funding; whether it funds its loans through a bona fide warehouse line of credit; its relationship with its investors; and its involvement in mortgage origination activities such as loan processing, underwriting, and making the final credit approval decision.

The guidance makes clear that no single question necessarily determines how the CFPB may exercise its supervisory and enforcement authorities, and that the facts and circumstances of the particular mortgage transaction being reviewed would be relevant to how the Bureau exercises these authorities.



The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit


U.S. regulators are seeking to stiffen standards for mortgage insurers that want to back loans sold to Fannie Mae and Freddie Mac to prevent a repeat of the losses the government-backed firms faced in the 2008 financial crisis, Zachary Tracer and Clea Benson report for Bloomberg News

Radian Group Inc. (RDN) and MGIC Investment Corp. are among mortgage insurers that would need to fill a financial gap under new financial-strength rules proposed by the Federal Housing Finance Agency. The stocks dropped in New York trading.

Radian said it would need about $850 million to meet the standard now and expects to be able to comply within a two-year transition period allowed under the rules. Milwaukee-based MGIC didn’t provide a figure and said it faced a “material shortfall.” Genworth Financial Inc. said yesterday that it may need as much as $550 million at its mortgage insurer by June 30, 2015, to meet the standards.

U.S. regulators are seeking to stiffen standards for mortgage insurers that back loans sold to Fannie Mae and Freddie Mac to prevent a repeat of the losses the government-backed firms faced in the 2008 financial crisis. Radian and MGIC (MTG) said the rules are too stringent and could make it more difficult for borrowers to afford homes.

“These guidelines create capital requirements that have the potential of shrinking access to the very segments of borrowers that we believe the government wants to expand homeownership for,” Radian Chief Executive Officer S.A. Ibrahim said in an interview. “They are going to be worst hit from this, one way or the other.”

Radian, MGIC and Genworth said they have ways to meet the higher asset levels, which may change in a final version of the rules. The companies cited strategies such as seeking reinsurance, selling assets, raising funds in the market or moving cash from other parts of their businesses.

“We have at Radian the ability to meet these requirements, even as stated, without the need to raise capital,” Ibrahim said.

Goldman’s View

The rules are more onerous for MGIC, because the company backs more delinquent and older loans than rivals, according to Eric Beardsley, an analyst at Goldman Sachs Group Inc. He removed the stock from his “Conviction List” today. Beardsley said the companies may need to raise prices, which could pressure sales.

MGIC fell 9.3 percent to $8.38 at 9:35 a.m. Richmond, Virginia-based Genworth (GNW), which also sells life insurance and long-term care coverage, slumped 5.7 percent. Radian, based in Philadelphia, dropped 4 percent.

The proposed rules are tighter than expected, particularly in their treatment of riskier borrowers, Jack Micenko, an analyst at Susquehanna International Group, said in a research note today.

‘More Onerous’

“The proposal is more onerous than we expected, and we believe if finalized under current form, would hurt the recovery in housing by limiting credit expansion,” he wrote. “We expect final rules to be less limiting than what was put forth yesterday. Realtors, lenders and builder trade groups are powerful lobbies.”

The companies have already turned to the capital markets to raise funds, so they can sell more coverage as home sales recover. Billionaire John Paulson is among the biggest equity investors in Radian, Milwaukee-based MGIC and Genworth. George Soros and Kyle Bass are among backers of rival firms.

To back loans packaged into securities by the U.S.-owned mortgage-finance giants, insurers would have to hold liquid assets worth at least 5.6 percent of their risk exposure, under the Federal Housing Finance Agency proposal. That compares with about 4 percent under existing state-based rules that use a broader definition of capital. The new rules require holding more assets against riskier loans, such as to borrowers with lower credit scores.

Watt’s View

“Mortgage insurance counterparties must be able to fulfill their intended role of providing private capital, even in adverse market conditions,” FHFA Director Melvin L. Watt said in an e-mailed statement.

The rules “require mortgage insurers to hold unnecessarily excessive assets with potential adverse effects on creditworthy borrowers and housing policy,” MGIC said in a statement yesterday.

Mortgage insurers now face 25-to-1 risk-to-capital limits from some state regulators. The new rules would require Radian to hold resources equivalent to a ratio of about 12-to-1 over time, Radian Chief Risk Officer Derek Brummer said on a conference call with analysts yesterday.

Risk Reduction

The proposal is the result of a years-long effort to rewrite the rules after Fannie Mae and Freddie Mac suffered losses when mortgage-insurance companies weren’t able to meet their obligations after the housing bubble burst. During the housing crash, about half the mortgage-insurance industry was pushed out of the business.

Fannie Mae and Freddie Mac have been under orders from their regulator to reduce their counterparty risk since they were seized by the federal government as they neared bankruptcy in 2008. They required $187.5 billion in taxpayer funds to stay afloat before they began posting record profits as the housing market recovered.

Fannie Mae, created by Congress during the Great Depression of the 1930s, and Freddie Mac, established in 1970 to compete with its older sister, keep money flowing through the U.S. home-loan machine by guaranteeing securities that lenders sell for the cash they can use to make more loans.

AIG, Essent

The guarantees provided by the two companies are separate from mortgage insurance, which cover losses when homeowners default and foreclosures fail to recoup costs.

American International Group Inc. (AIG)’s United Guaranty Corp., the largest seller of the coverage, said it supports efforts to bolster confidence in Fannie Mae and Freddie Mac. AIG, which mostly sells property-casualty coverage and life insurance, slipped 0.6 percent.

Arch Capital Group Ltd. (ACGL) and Essent Group Ltd. (ESNT), which began selling coverage after the crisis, said in statements that they would be in compliance if the new rules took ‘effect immediately. Another new firm, NMI Holdings Inc. (NMIH), said the rules are “a step in the right direction,” and that it will be “well positioned” to meet the standards.

The proposals were developed by Fannie Mae and Freddie Mac in consultation with state insurance regulators and the mortgage insurers themselves. The rules are now open for a 60-day comment period, and the final version will become effective 180 days after they’re published.

To contact the reporters on this story: Zachary Tracer in New York at; Clea Benson in Washington at

To contact the editors responsible for this story: Dan Kraut at Dan Reichl

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