The PMI Group's principal operating subsidiary PMI Mortgage Insurance Co. (MIC), said that Fannie Mae has approved PMI Mortgage Assurance Co. (PMAC) as a direct issuer of mortgage guaranty insurance.

Pursuant to Fannie Mae’s approval, PMAC may write new mortgage insurance business, if any, in 16 states in the event MIC is required to cease writing new mortgage insurance business due to its financial condition, including its inability to meet regulatory capital requirements applicable to mortgage insurers.

However, Fannie Mae’s approval is subject to certain conditions and restrictions, including a limitation on PMAC’s new business volumes, and will remain in effect until December 31, 2011.

According to PMI, the PMAC, following certain internal restructuring and capital initiatives, including a $10m investment from MIC, will hold approximately $28m of capital. If necessary, it will insure new loans under the same policy terms and conditions as MIC, and will contract with MIC to provide it with sales, operational and other support services.

In addition, PMAC is also in negotiations with Freddie Mac about becoming an eligible insurer under Freddie Mac’s guidelines.

Stephen Smith, chairman and CEO of PMI, said: Fannie Mae’s approval of PMAC as an eligible mortgage insurer is an important step in our strategy of continuing to support our customers and the mortgage markets by continuing to write new mortgage insurance business throughout the US.