Bracing For The Next Crash: Mortgage Reinsurance Emerges

January 25, 2017 - In the aftermath of the mortgage crisis, many monoline mortgage insurers were dismayed to discover that they were undercapitalized, while others were pushed out of the business altogether. Now that the economy has recovered, these insurers are looking to learn from past mistakes in order to prevent repeating them. In response to this need in the market, private third-party reinsurance has emerged.  

Prior to the mortgage crisis, third-party mortgage reinsurance was not considered necessary, as many mortgage insurers relied on other methods to insulate themselves from losses, such as captive reinsurance. But the crisis, along with new developments that occurred in the wake of the crisis, made mortgage reinsurance an appealing offering. One of these developments occurred in 2015, when Fannie Mae updated its private mortgage insurer eligibility requirements (PMIERs) to increase the capital requirements for mortgage insurers seeking to provide insurance to the GSEs. As Butler Rubin partners Julie Rodriguez Aldort and Randi Ellias wrote in an article recently published in Law360, “With the increased capital demands of the PMIERs, mortgage insurers began looking to third-party sources to provide balance sheet relief.”

In their article, titled “Bracing for the Next Crash: Mortgage Reinsurance Emerges,” Aldort and Ellias discuss the factors that led to the rise of mortgage reinsurance and provide a closer look at the regulatory oversight applied to mortgage insurance and reinsurance.


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