Mortgage Insurance Game ~ YOU PAY 100% Premiums, RECEIVE 60% on Claims, and a 40% IOU

peaceandlove · 04-06-2009, 07:23 AM

Mortgage Insurance Woes Grow for Fannie, Freddie

By PAUL JACKSON
April 2, 2009 11:03 AM CST

Imagine paying full premium for an insurance contract, and receiving only 60 percent on any claim you make — that’s the unsavory situation now being faced by both Fannie Mae (FNM: 0.72 +5.88%) and Freddie Mac (FRE: 0.75 +1.35%), as well as a bevy of private-market lenders, on their mortgage insurance contracts with troubled mortgage insurer Triad Guaranty Inc. (TGIC: 0.25 +32.42%).

The insurer, which put itself into run-off and ceased writing new mortgage insurance policies in the middle of last year, said late Wednesday that it had received a corrective order from its regulator, the Illinois Director of Insurance, limiting its payout on claims to 60 percent. The remaining 40 percent of a claim will essentially take the form of an IOU, or a deferred payment obligation (DPO), meaning the lender/investor will not immediately be able recover the full amount of its claim.

Which means one thing: get ready for loss severities to go up, as servicers recover less on a growing number of bad loans. Especially so if other mortgage insurers are eventually forced to follow Triad’s lead, as some analysts say they expect.

Article continues: http://www.housingwire.com/2009/04/0...annie-freddie/

Commentary by Karl Denninger:

BOOM!!!! (Fannie/Freddie etc.)
Oh Cr*p: (Triad)

The insurer, which put itself into run-off and ceased writing new mortgage insurance policies in the middle of last year, said late Wednesday that it had received a corrective order from its regulator, the Illinois Director of Insurance, limiting its payout on claims to 60 percent. The remaining 40 percent of a claim will essentially take the form of an IOU, or a deferred payment obligation (DPO), meaning the lender/investor will not recover the full amount of its claim.

This is going to result in insane severity increases on losses taken by Fannie, Freddie, and anyone else in the mortgage business that has wraps (PMI) written by Triad (think BAC, WFC, etc)

If this spreads then it of course gets even worse.

Worse, policyholders will still be required to make full premium payments!

How would you like to make a full premium payment on your house insurance and then get paid only 60 cents, with the other 40 cents being an "IOU" of dubious value?

This is going to get ugly - imminently.

Hattip Kingfish on the story.

Source: http://market-ticker.denninger.net/a...ddie-etc..html

These next two articles posted at: http://solari.com/blog/ Catherine Austin Fitts' blog

Fannie Mae and Freddie Mac Receive $46 Billion From Treasury

By Dawn Kopecki

April 1 (Bloomberg) -- The U.S. Treasury injected $46 billion in emergency funds into government-controlled mortgage-finance companies Fannie Mae and Freddie Mac.

The Treasury payout yesterday included a $15.2 billion investment in Fannie’s preferred stock and a $30.8 billion purchase of Freddie’s preferred shares, the companies said in separate filings to the Securities and Exchange Commission today. The companies must pay a minimum dividend of 10 percent.

The Obama administration and Congress have been leaning on the government-sponsored enterprises to help lower mortgage rates and loosen lending requirements even as the two suffer record losses on their existing mortgage investments. Regulators put the two into conservatorship in September, and the Treasury has agreed to invest as much as $200 billion into each company as needed when their assets fall below the value of liabilities.

Freddie’s net worth was negative in both the third and fourth quarters. The McLean, Virginia-based company took $13.8 billion in aid from the Treasury in November. Washington- based Fannie’s draw from the fund yesterday was its first and goes toward erasing a net-worth deficit for the fourth quarter.

Both companies said in recent securities filings that they will need more aid and that the $400 billion Treasury lifeline may not be enough to stay afloat this year.

Freddie’s total of $44.6 billion in draws from the Treasury’s preferred stock program carries an annual dividend of at least $4.5 billion, according to a March regulatory filing. Fannie’s draws would require an annual dividend payout of at least $1.6 billion, according to a February regulatory filing.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=a1Va5SmQCD1o&refer=home

Bonuses for Fannie, Freddie workers total $210 million; regulator defends payouts

Alan Zibel, AP Real Estate Writer
Friday April 3, 2009, 2:37 pm EDT

WASHINGTON (AP) -- Mortgage finance giants Fannie Mae and Freddie Mac plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs at the government-controlled companies.

The retention awards for more than 7,600 employees were disclosed in a letter from the companies' regulator released Friday by Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. The companies paid out nearly $51 million last year, are scheduled to make $146 million in payments this year and $13 million in 2010.

"It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year," Grassley said in a statement. "It's an insult that the bonuses were made with an infusion of cash from taxpayers."

Article continues: http://finance.yahoo.com/news/Fannie...-14845980.html

04-06-2009, 07:23 AM	#1
peaceandlove Avalon Senior Member Join Date: Sep 2008 Location: Turtle Island Posts: 2,776	Mortgage Insurance Game ~ YOU PAY 100% Premiums, RECEIVE 60% on Claims, and a 40% IOU Mortgage Insurance Woes Grow for Fannie, Freddie By PAUL JACKSON April 2, 2009 11:03 AM CST Imagine paying full premium for an insurance contract, and receiving only 60 percent on any claim you make — that’s the unsavory situation now being faced by both Fannie Mae (FNM: 0.72 +5.88%) and Freddie Mac (FRE: 0.75 +1.35%), as well as a bevy of private-market lenders, on their mortgage insurance contracts with troubled mortgage insurer Triad Guaranty Inc. (TGIC: 0.25 +32.42%). The insurer, which put itself into run-off and ceased writing new mortgage insurance policies in the middle of last year, said late Wednesday that it had received a corrective order from its regulator, the Illinois Director of Insurance, limiting its payout on claims to 60 percent. The remaining 40 percent of a claim will essentially take the form of an IOU, or a deferred payment obligation (DPO), meaning the lender/investor will not immediately be able recover the full amount of its claim. Which means one thing: get ready for loss severities to go up, as servicers recover less on a growing number of bad loans. Especially so if other mortgage insurers are eventually forced to follow Triad’s lead, as some analysts say they expect. Article continues: http://www.housingwire.com/2009/04/0...annie-freddie/ Commentary by Karl Denninger: BOOM!!!! (Fannie/Freddie etc.) Oh Crp: (Triad) The insurer, which put itself into run-off and ceased writing new mortgage insurance policies in the middle of last year, said late Wednesday that it had received a corrective order from its regulator, the Illinois Director of Insurance, limiting its payout on claims to 60 percent. The remaining 40 percent of a claim will essentially take the form of an IOU, or a deferred payment obligation (DPO), meaning the lender/investor will not recover the full amount of its claim. This is going to result in insane severity increases on losses taken by Fannie, Freddie, and anyone else in the mortgage business that has wraps (PMI) written by Triad (think BAC, WFC, etc) If this spreads then it of course gets even worse. Worse, policyholders will still be required to make full premium payments! How would you like to make a full premium payment on your house insurance and then get paid only 60 cents, with the other 40 cents being an "IOU" of dubious value? This is going to get ugly - imminently. Hattip Kingfish on the story. Source: http://market-ticker.denninger.net/a...ddie-etc..html These next two articles posted at: http://solari.com/blog/ Catherine Austin Fitts' blog Fannie Mae and Freddie Mac Receive $46 Billion From Treasury* By Dawn Kopecki April 1 (Bloomberg) -- The U.S. Treasury injected $46 billion in emergency funds into government-controlled mortgage-finance companies Fannie Mae and Freddie Mac. The Treasury payout yesterday included a $15.2 billion investment in Fannie’s preferred stock and a $30.8 billion purchase of Freddie’s preferred shares, the companies said in separate filings to the Securities and Exchange Commission today. The companies must pay a minimum dividend of 10 percent. The Obama administration and Congress have been leaning on the government-sponsored enterprises to help lower mortgage rates and loosen lending requirements even as the two suffer record losses on their existing mortgage investments. Regulators put the two into conservatorship in September, and the Treasury has agreed to invest as much as $200 billion into each company as needed when their assets fall below the value of liabilities. Freddie’s net worth was negative in both the third and fourth quarters. The McLean, Virginia-based company took $13.8 billion in aid from the Treasury in November. Washington- based Fannie’s draw from the fund yesterday was its first and goes toward erasing a net-worth deficit for the fourth quarter. Both companies said in recent securities filings that they will need more aid and that the $400 billion Treasury lifeline may not be enough to stay afloat this year. Freddie’s total of $44.6 billion in draws from the Treasury’s preferred stock program carries an annual dividend of at least $4.5 billion, according to a March regulatory filing. Fannie’s draws would require an annual dividend payout of at least $1.6 billion, according to a February regulatory filing. Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=a1Va5SmQCD1o&refer=home Bonuses for Fannie, Freddie workers total $210 million; regulator defends payouts Alan Zibel, AP Real Estate Writer Friday April 3, 2009, 2:37 pm EDT WASHINGTON (AP) -- Mortgage finance giants Fannie Mae and Freddie Mac plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs at the government-controlled companies. The retention awards for more than 7,600 employees were disclosed in a letter from the companies' regulator released Friday by Sen. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee. The companies paid out nearly $51 million last year, are scheduled to make $146 million in payments this year and $13 million in 2010. "It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year," Grassley said in a statement. "It's an insult that the bonuses were made with an infusion of cash from taxpayers." Article continues: http://finance.yahoo.com/news/Fannie...-14845980.html