USMI Roundup: Developments in Housing Finance
We are ready for March Madness but will take the extra day in February to highlight what has been a very busy start to 2020 for housing policy!
CFPB Director on Qualified Mortgage (QM) Rule
Industry and Consumer Groups Call for Maintaining Prudent Underwriting Guardrails as Part of QM Patch Replacement
CFPB Director Kathy Kraninger Testifies before House Financial Services Committee
USMI Speaks on QM “in a Post-Patch World”
USMI President Lindsey Johnson at Structured Finance Association
FHFA Moves Ahead with Plans to End Conservatorship
FHFA Issues and RFI on FHLBank Membership
Administration and Congress Take Action on Housing Affordability
Dana Wade Nominated as FHA Commissioner
USMI President Lindsey Johnson on the FHA Insurance Fund
ICYMI: Extension of the MI Tax Deduction
- Consumer Financial Protection Bureau (CFPB) Director on QM Rule. On January 17, CFPB Director Kathy Kraninger sent a letter to select members of Congress notifying them of the CFPB’s intentions to eliminate the debt-to-income (DTI) ratio requirement and move to a standard based on an alternative metric, specifically a pricing threshold. She wrote that the CFPB would extend the QM definition “for a short period until the effective date of the proposed alternative or until one or more of the GSEs [government sponsored enterprises] exits conservatorship, whichever comes first.” As for the DTI requirement, Director Kraninger proposed replacing it for a pricing threshold, such as the difference between the loan’s annual percentage rate (APR) and the average prime offer rate (APOR) for a comparable transaction (the APOR-approach).
- Industry and Consumer Groups Call for Maintaining Prudent Underwriting Guardrails as Part of QM Patch Replacement. In response, on January 21, USMI joined eight other organizations on a letter to Director Kraninger recommending the CFPB replace the current QM definition with one that relies on measurable underwriting thresholds and the use of compensating factors (such as liquid reserves, limited payment shock, and/or a larger down payment from the borrower’s own funds) for higher risk mortgages (those loans with DTI ratios above 45 and up to 50 percent). This letter goes on to explain how alternative recommendations (e.g., using pricing thresholds) would have a negative impact on minority and lower income borrowers and should be avoided through the better approach of relying on other compensating factors that enable prudent underwriting and affordable access to credit.
The organizations also urged “that the transition period from the existing GSE Patch to the new QM framework be sufficiently long to allow market participants adequate time to plan for, and adjust to, new rules and underwriting standards” in order to avoid the risks of regulatory uncertainty “that might cause mortgage originators to retreat from lending to creditworthy homebuying and refinancing borrowers.”
- Kraninger Testifies before House Financial Services Committee. On February 6, Director Kraninger testified before the House Committee on Financial Services where the discussion on the QM definition continued. Representatives Nydia M. Velasquez (D-NY), Brad Sherman (D-CA), French Hill (R-AR), Warren Davidson (R-OH), Alma Adams (D-NC), and Anthony Gonzalez (R-OH) all raised questions on the CFPB’s plan to replace the DTI requirement and its potential impact on the housing finance market and on low-to-moderate income borrowers’ access to safe and affordable mortgage finance credit. When asked on the timing for the release of the QM Notice of Proposed Rulemaking (NPR), Director Kraninger responded “no later than May,” which was affirmed this week by the Bureau when it formally announced it will issue proposed changes to the QM definition by May. Director Kraninger said, “[t]he bureau will propose an alternative, such as a pricing threshold, to better ensure that responsible, affordable mortgage credit remains available to consumers.” If you have not read it yet, USMI released a blog last year with observations and recommendations for replacing the QM and balancing prudent underwriting with borrower access to affordable mortgage finance in the conventional market.
- USMI Speaks on QM “in a Post-Patch World.” On February 18, USMI President Johnson spoke at a panel co-hosted by the Mortgage Bankers Association (MBA) and Women in Housing Finance (WHF) on the future of QM after the expiration of the QM Patch. The panel discussed how the housing industry could change in the near future and the roles that other housing intuitions, like private mortgage insurance (MI), will play in supporting a vibrant housing industry.
- USMI President Lindsey Johnson at Structured Finance Association (SFA). This week, USMI President Johnson, along with Pete Carroll from Core Logic, Andrew Davidson from Andrew Davidson & Co., Rajiv Kamilla from Goldman Sachs, Larry Platt from Mayer Brown, and Jeremy Switzer from Penny Mac, spoke on a panel at SFA’s conference in Las Vegas titled, “Building Industry Governance for the PLS Market.” Johnson discussed the important governance changes and enhancements in quality controls and industry practices and regulation that have occurred in the conventional market that would greatly benefit the private label security (PLS) market, including the underwriting criteria that have developed under the QM Patch. Johnson also spoke about the role private MI can play to bring greater credit quality assurances and ensure prudent risk management in the PLS market.
- Federal Housing Finance Agency Moves Ahead with Plans to End Conservatorship. On February 3, FHFA awarded the investment bank Houlihan Lokey Inc. a potential $45 million advisory contract to help recapitalize the GSEs as part of the government’s plan to end their conservatorships. FHFA Director Mark Calabria stated “[h]iring a financial advisor is a significant milestone toward ending the conservatorships of the enterprises,” adding that “[t]he next major milestone for the FHFA is the re-proposal of the capital rule, which will happen in the near future.”
- FHFA Issues a Request for Input (RFI) on Federal Home Loan Bank (FHLBank) Membership. Earlier this week, the FHFA issued a RFI for FHLBank membership, in which it seeks input “on whether the FHFA’s existing regulation on FHLBank membership ensures the FHLBank System, consistent with statutory requirements, remains safe and sound, provides liquidity for housing finance through the housing and business cycle, and supports the FHLBanks’ housing finance and community development mission.”
- Administration and Congress Take Action on Housing Affordability. Yesterday, the FHFA announced the authorization of payments for 2019 from the GSEs to the Department of Housing and Urban Development (HUD) for the Housing Trust Fund and Treasury for the Capital Magnet Fund. The Housing Trust Fund, an affordable housing program designed to increase and preserve the supply of decent, safe, and sanitary affordable housing for extremely low- and very low-income households, received $326.4 million and the Capital Magnet Fund, a program focused on the developments, preservation, rehabilitation, and purchase of housing for low income families, received $175.8 million. Congress also took steps this week to explore housing affordability and the House Financial Services Committee marked up and approved four bills concerning housing and community development:
- H.R. 5931, the “Improving FHA Support for Small Dollar Mortgages Act of 2020” (Clay-Stivers), would require FHA to conduct a review of its policies to identify barriers to supporting mortgages under $70k and report to Congress within one year with a plan for removing such barriers. The bill was reported favorably to the House by a recorded vote of 48 to 0.
- H.R. 149, the “Housing Fairness Act of 2020” (Rep. Green), would authorize increased funding for HUD’s Fair Housing Initiatives Program in addition to creating a new competitive matching grant program to support comprehensive studies of the causes and effects of ongoing discrimination and segregation, and the implementation of pilots to test solutions. The bill was reported favorably to the House by a recorded vote of 33 to 25.
- H.R. 4351, the “Yes in My Backyard Act” (Rep. Heck), would require localities receiving CDBG funding to submit a plan to track and report on the implementation of certain land use policies that promote housing production. The bill was agreed to and reported favorably to House by a voice vote.
- H.R. 5187, the “Housing Is Infrastructure Act” (Chairwoman Waters), would authorize $100.6 billion for investments in the nation’s affordable housing infrastructure, including public housing, supporting housing for seniors and people with disabilities, making housing affordable to the lowest-income people, and rural and Native American housing. The bill was reported favorably to the House by a recorded vote of 33 to 25.
- Dana Wade Nominated as Federal Housing Administration (FHA) Commissioner. On February 20, the White House announced President Trump’s intent to nominate Dana Wade as FHA Commissioner and oversee the agency’s $1.3 trillion portfolio. USMI President Lindsey Johnson issued a statement applauding the nomination, stating that USMI “look[s] forward to working closely with Dana Wade in seeking ways to establish a more complementary, collaborative, and consistent housing finance system that prudently enables homeownership for American families while also protecting taxpayers.”
- USMI President Lindsey Johnson on the FHA Insurance Fund. Scotsman Guide shared USMI President Lindsey Johnson’s views on the current health of the FHA insurance fund in an article on the wider industry debate surrounding the FHA’s insurance fund. Johnson noted that the insurance fund is highly vulnerable to market changes, adding that “[t]axpayers are currently exposed to over $1.19 trillion in outstanding mortgage risk at the FHA. This would only increase if FHA insurance premiums were reduced. Also, any change to FHA’s life-of-loan coverage would mean exposing taxpayers to further undo risk.”
- ICYMI: Extension of the MI Tax Deduction. In January, Congress passed the Further Consolidated Appropriations Act of 2020, which retroactively extended tax deductions for mortgage insurance premiums to calendar year 2018 and remains in effect throughout 2020. USMI President Lindsey Johnson issued a statement praising the extension saying, “[w]e are pleased Congress extended the mortgage insurance tax deduction for years 2018 through the end of 2020. Private MI has helped more than 30 million middle-income Americans become homeowners over the last 60 years, and for over 10 years the deductibility of mortgage insurance has helped benefit millions of these hard-working borrowers.” According to the most recent IRS statistics of income, in 2017 alone more than 2.285 million taxpayers benefited from the MI premium tax deduction. The deduction is available to homeowners (married filing jointly) with MI who have adjusted gross incomes under $100,000 and phases-out for adjusted gross incomes up to $110,000. Earlier this week, the IRS issued a news release (IR-2020-44) describing the procedure for taxpayers to claim benefits of for expired provisions for already-closed tax years. According to guidance from the IRS, homeowners seeking to retroactively claim a tax deduction for mortgage insurance premiums for tax year 2018 will need to file an amended return using form 1040-X.
U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org