Capital constraints on mortgage insurance companies could impede the ability of Fannie Mae and Freddie Mac to keep up with the demand for mortgage financing during the housing recovery, according to a report by the government-sponsored enterprises' regulator.

Former Federal Housing Finance Agency (FHFA) director James Lockhart has been urging the Treasury Department to provide capital assistance for the private MIs since last November.

The Mortgage Insurance Cos. of America (MICA) also is seeking assistance. "We have a request pending and we are waiting for a response," said MICA spokesman Jeff Lubar.

The GSEs can purchase single-family mortgages with loan-to-value ratios higher than 80% only if the homebuyer gets mortgage insurance.

The FHFA Mortgage Market Note issued a few days after Mr. Lockhart's departure projects that the demand for such high LTV loans could hit $230 billion in 2009. The ability of the MIs to meet that level of demand is "remote," FHFA report said.

"The industry's ability to build and maintain sufficient capital to meet the needs of the enterprises over the short term without some federal assistance or an infusion of private capital is unclear," the report concluded.

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