Invest1 publisher3 min readPublished
Fannie clears servicers to call the 40% of borrowers KBW says can already drop PMI
William Pulte directed Fannie Mae to copy Freddie Mac and let servicers phone borrowers whose homes have appreciated. KBW's Bose George expects modest uptake and says the released capital goes to buybacks.
The Investor · Invest desk
What happened
- FHFA Director William Pulte said Fannie Mae mortgage servicers are now free to contact borrowers whose private mortgage insurance policies are eligible to be cancelled.
- In a 3 PM message on X the same day, Pulte said he had directed Fannie Mae to update its guide to mirror the Freddie Mac policy.
- Under the Homeowners Protection Act of 1998, a borrower can request cancellation once the loan-to-value ratio reaches 80%, and the law requires cancellation at 78%.
- Keefe, Bruyette & Woods estimates roughly 40% of borrowers have a loan-to-value ratio under 80% based on appraised value, leaving their policies eligible for cancellation.
- In a separate post, Pulte said the mortgage insurance companies have "truly unbelievable PROFIT percentages."
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Why it matters
- contradiction Fannie said it already authorizes proactive outreach to borrowers approaching the termination threshold and wants to extend it to homes that have appreciated, which places the dispute on which value counts, not on whether servicers may call at all.
- constraint A one-time cancellation wave releases capital into companies already spending the bulk of their earnings on repurchases, so the money changes the pace of buybacks and not the underwriting.
- cost George said costs to new borrowers could rise over time as insurers price political uncertainty into their mortgage-duration assumptions.
- precedent The enterprises' guides decide when a policy above 80% LTV can end, so the next change to the insurers' revenue can arrive the same way this one did.
Fannie Mae's automatic cancellation is measured against the home's original value. "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," the company said [7]. Appreciation does not move that date. Amortization has two points of loan-to-value to cover between the borrower's statutory right to ask and the mandatory cancellation [2]. The other route runs on a new appraisal. "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!" wrote Pulte, who chairs both Fannie Mae and Freddie Mac and posted Tuesday morning on X [9][2]. Freddie already lets servicers make the call, he said [4].
That leaves about 60% of borrowers outside the appraised-value window [1]. Inside it sits a particular vintage: most of these are 2020 and 2021 loans, and the average borrower likely has a 3% rate and is unlikely to pay off the loan, according to Bose George of Keefe, Bruyette & Woods [18]. A borrower who will not refinance keeps paying the premium until amortization brings the original-value ratio to 78%. George expects consumer uptake, and so the impact on the industry, to be modest [16].
"A modest increase in cancellations is not a meaningful negative," George wrote in a flash note [13]. He said the earnings-per-share impact should be fairly limited for the insurers whose stock trades near its book value [15].
"By definition this benefit would only be going to borrowers who are already homeowners with significant equity in their homes," George said [17]. Seth Appleton, president of U.S. Mortgage Insurers, welcomed the change. "Aligning Fannie Mae with Freddie Mac's policy so servicers can proactively reach out to borrowers is an action that we support," he said [20]. Appleton also said premium rates have declined 25% or more since 2017, driven by competition in the market and the lower corporate tax rates enacted in President Trump's first term [21]. A policy written now therefore costs at most three quarters of the 2017 rate [3]. He cited USMI data putting private MI's saving for the average homebuyer at $48,000 at the closing table [22].
Pulte's post ended, "You can stop paying for coverage you do not need and keep the money" [10]. For a borrower on a 3% loan the saving is monthly; for the insurer it is premium taken out of a book it expected to hold for years. The comparison with the government product is unchanged, since the FHA premium runs for the life of the loan [23]. George said that if Pulte's ultimate goal is to increase housing affordability, this does not help [24].
What to watch
- Whether Fannie's updated servicing guide names the appraised-value route explicitly and what evidence of value it will accept.
- Whether the mortgage insurers change persistency or mortgage-duration assumptions in their next disclosures.
- Whether FHFA follows the outreach change with action on MI eligibility or pricing at the two enterprises.