MI Protects Taxpayers
In addition to helping borrowers purchase a home, MI also helps reduce risk for taxpayers. MI does this by meeting a requirement established by Congress that low down payment loans sold to the government-sponsored enterprises Fannie Mae or Freddie Mac (the GSEs) have extra credit protection.
MI is a first level of credit protection against the risk of loss on a mortgage in the event a borrower is not able to repay the loan and there is not sufficient equity in the home to cover the amount owed. With the GSEs in conservatorship and the government effectively guaranteeing the GSEs, taxpayers face direct exposure to mortgage credit losses experienced by the GSEs.
Traditionally, for loans with down payments under 20 percent of the home value, MI – not taxpayers – covers the first losses if there is a default, up to certain coverage limits.
- The MI industry has covered approximately $50 billion in claims for losses, which represents a substantial savings to taxpayers.
- More than $825 billion in GSEs mortgages currently outstanding have protection from MI coverage, reducing taxpayer exposure to mortgage losses in the event of another housing downturn.
- Today’s MI industry is attracting new private capital back to housing finance, with about $14 billion in new capital invested since 2007.
- In 2016, MI covered 13.1% ($270B) of total mortgage originations ($2.07T), up from 4.4 percent in 2010.
- MI accounted for more than 35 percent of the insured market in 2016.
Looking ahead, the nation’s housing finance system needs to be put on a more sustainable footing so that more Americans will have access to prudent and affordable mortgage credit well into the future and taxpayers are further shielded from risks. Front-end risk sharing does just that by making greater use of private capital to “de-risk” the GSEs and lower the exposure and costs for GSEs and taxpayers.
Today, private capital in the form of MI already provides significant risk protection against losses on low down payment loans. Traditionally, for loans with down payments under 20 percent of the home value, MI – not taxpayers – covers the first losses if there is a default, up to certain coverage limits.
Risk Sharing With MI Can Further Reduce GSE Exposure
The GSEs and the Federal Housing Finance Agency (FHFA) recently finalized Private MI Eligibility Requirements (PMIERs), setting robust operational and financial standards, which provide greater market confidence in the value and role of a strengthened MI industry. The PMIERs establish the foundation for MI to provide greater “front-end” risk sharing solutions – transferring credit risk to third parties when the loan is originated, rather through “back-end” risk sharing on loans that are already on the GSEs’ balance sheets. In the future, MI could provide even “deeper cover” on low down payment loans.
USMI op-eds on Reducing Taxpayer Exposure
American Banker- Congress Has Not Acted, So Here’s a Simpler GSE Plan
The Hill- Making progress to sustain homeownership