Freddie Mac and a "panel" of insurance companies are partnering for a pilot mortgage insurance program, a Freddie Mac spokesperson confirmed.
"This limited negotiated offering with a panel of insurers will be a way for us to explore an alternative structure for lenders to obtain mortgage insurance," the spokesperson said in an emailed statement about the program, called Integrated Mortgage Insurance. The company's traditional mortgage insurance structure "remains an important tool" to provide access to credit, he added.
The spokesperson also confirmed that Arch Capital Group Ltd. is among the insurers involved in the pilot.
The stocks of several mortgage insurers on March 12 traded down on what Wells Fargo analyst Sean Dargan said were fears of the effect of the pilot program.
"As we understand it, the new program would allow lenders to pass off mortgage insurance allocation on qualifying business with down payments lower than 20% to Freddie Mac, which would then aggregate loans for Arch to insure on the back end through a Bermuda reinsurer," Dargan said in a March 12 note.
The analyst noted that Essent Group Ltd., which slid by 9.88% on the day, would be better positioned to replicate an Arch Capital model because it has a Bermuda reinsurance structure. Domestic mortgage insurers MGIC Investment Corp. and Radian Group Inc. dropped by 9.50% and 10.22%, respectively. NMI Holdings Inc. fell by 10.64%.
Arch Capital's shares fell by 3.32% on the day, while Freddie Mac climbed by 3.16%.
