Looks like Fannie and Freddie are tap dancing on more quicksand thanks to trouble in the mortgage insurance industry.

Imagine paying full premium for an insurance contract, and receiving only 60 percent on any claim you make — that’s the unsavory situation now being faced by both Fannie Mae (FNM: 0.72 +5.88%) and Freddie Mac (FRE: 0.76 +2.70%), as well as a bevy of private-market lenders, on their mortgage insurance contracts with troubled mortgage insurer Triad Guaranty Inc. (TGIC: 0.26 +37.71%).

The insurer, which put itself into run-off and ceased writing new mortgage insurance policies in the middle of last year, said late Wednesday that it had received a corrective order from its regulator, the Illinois Director of Insurance, limiting its payout on claims to 60 percent. The remaining 40 percent of a claim will essentially take the form of an IOU, or a deferred payment obligation (DPO), meaning the lender/investor will not immediately be able recover the full amount of its claim. ...

In a frequently asked questions document, Triad noted that policyholders will still be required to pay the full premium, since “Triad is recognizing its entire claim obligation at the time of the claim through the cash payment and DPO, with the intent of paying the DPO amount in the future.” But when that future is seems pretty uncertain, to say the least: the future payment on the DPO can only occur when the insurer’s regulator sees the insurer achieve specified minimum surplus balances and risk-to-capital ratios. It’s unclear how a company that is not bringing in new revenue via new policies can be expected to bolster its level of capital.

Also unclear: why any of Triad's customers wouldn't immediately cancel their policies and change providers.

I don't understand the intricacies of the industry, but I'm pretty sure the taxpayer will somehow end up getting screwed over this.

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