Page 42 - The GSE Report March-April 2018

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said Freddie Mac spokesman Chad Wandler. (Press Release, Arch Capital, 03/13/18; National Mortgage News, Brad Finkelstein, 03/14/18)
In a note to clients, Compass Point analysts Chris Gamaitoni and Isaac Boltansky wrote:
Freddie Mac’s LPMI Pilot
Freddie Mac has initiated a pilot program that is a substitution for private mortgage insurance termed Integrated Mortgage Insurance (IMAGIN). Full program documents have not been made publicly available, but information has been made available through various statements by related parties. Below is a summary of what we know about the program.
• A panel of reinsurers will provide lender paid mortgage insurance (LPMI) to loans sold to Freddie Mac, administered by an MGA run by Arch.
• LPMI is placed on loans at the front-end, which we believe is facilitated through cash window sales.
• Our understanding is that there is a 12-month flow agreement to write LPMI from a panel of reinsurers. Freddie Mac stated to Bloomberg that over the next 12 to 18 months it is unlikely the program will write more than 3% of industry NIW.
• The pricing for the program is at a ~20% discount to standard mortgage insurance rate cards for LPMI. We highlight that LPMI rate cards are commonly discounted for individual lender clients and the comparative delta is likely significantly lower. Freddie Mac attributes the lower cost to the elimination of marketing and operational costs, but we believe it is primarily attributable to a capital arbitrage between PMIERs and the amount required to be held by reinsurers is less than that required of mortgage insurers.
• The primary reason that Freddie Mac is executing the pilot appears to be furthering its diversification of counterparty risk.
• The only large lender that we can confirm is participating in the program is Freedom Mortgage.
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