Statement: FHFA 2016 Scorecard

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USMI Statement on FHFA 2016 Scorecard 

Today, the Federal Housing Finance Agency (FHFA) released the 2016 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions.  USMI welcomes the continued attention by FHFA in the scorecard to de-risk the Government Sponsored Enterprises (GSEs) through greater sharing of credit risk with the private sector.  At the same time, USMI remains committed to working with FHFA and the GSEs on specific steps to increase the amount and levels of credit risk transferred and to take greater advantage of the benefits of front-end risk sharing.

“We look forward to responding to the Request for Input and encourage FHFA to proceed in order to take advantage of expanded front-end risk sharing, particularly with private mortgage insurance (MI), to more fully protect taxpayers from exposure to housing related losses,” said Lindsey Johnson, President and Executive Director of USMI.  “After three years of largely back end risk sharing transactions, the time is right to move forward with a more balanced approach.”

As policymakers continue to work toward de-risking the GSEs in the absence of comprehensive reform, expanded front-end risk sharing with MI should be a part of the solution.

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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.

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Newsletter: December 2015

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Recap: Making Housing Finance System More Sustainable and Reducing Taxpayer Exposure Through Increased Front End Risk Sharing

Last week, we saw several indications that momentum is growing to make the housing finance system more sustainable and reduce taxpayer exposure by further de-risking the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac with increased front end risk sharing, in particular, by expanding private Mortgage Insurance (MI) coverage.

  • Bipartisan members of Congress are urging FHFA to take additional steps to expand front end risk sharing. Representatives Stivers (R-OH) and Moore (D-WI) expressed concern over the “lack of balance between ‘front-end’ and ‘back-end’ risk sharing.”  And Representatives Luetkemeyer (R-MO) and McHenry (R-NC) sent a letter to FHFA urging them to “require the Enterprises to also explore and engage in diverse forms of front-end credit risk sharing.”  The House letters join a bipartisan Senate letter signed by Mark Warner (D-VA), Bob Corker (R-TN), Heidi Heitkamp (D-ND), Mike Crapo (R-ID), Jon Tester (D-MT), and Dean Heller (R-NV) which also encourages FHFA to expand and better define the development of credit risk transfer programs.
  • The Mortgage Bankers Association sent a letter to FHFA Director Mel Watt urging FHFA to require greater use of up-front risk sharing by the GSEs, particularly with deeper private mortgage insurance (MI) coverage, to de-risk loans before they are acquired by the GSEs.
  • Doug Holtz-Eakin of American Action Forum stated that de-risking the GSEs through greater use of private mortgage insurance (PMI) “represents a step toward finally resolving the structural flaws that contributed to the [financial] crisis.”
  • Respected analysts Laurie Goodman, James Parrott and Mark Zandi issued a joint paper – Delivering on the Promise of Risk Sharing – which provides a very thorough analysis of all the options, including up front risk sharing with MI.
  • USMI president Lindsey Johnson was in the news, with an op-ed in The American Banker and a Q&A in DS News, both on risk sharing.

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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.

 

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Statement: Moore – Stivers Letter to FHFA Director Watt

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For Immediate Release

December 4, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Moore – Stivers Letter to FHFA Director Watt

“Yesterday’s bipartisan letter from Representatives Gwen Moore (D-WI) and Steve Stivers (R-OH) to Federal Housing Finance Agency (FHFA) Director Watt is further evidence of the growing bipartisan support for de-risking the Government Sponsored Enterprises (GSEs) with additional risk sharing transactions to reduce taxpayer exposure to losses from another housing downturn.  USMI commends Representatives Moore and Stivers for urging FHFA to take additional steps to incorporate front end risk sharing, including with MI.

The letter expresses concern ‘about the lack of balance between ‘front-end’ and ‘back-end’ risk sharing.  With FHFA having affirmed the importance of using private capital whenever practicable and equitable in credit-risk sharing transactions, we wanted to urge additional exploration and refinement of credit-risk sharing techniques that are consistent with other federal housing goals.’

Front-end risk share transactions transfer the risk of loans before they ever reach the GSE’s balance sheets.  The letter by Reps. Moore and Stivers joins a bipartisan letter in the U.S. Senate by Sens. Mark Warner (D-VA), Bob Corker (R-TN), Heidi Heitkamp (D-ND), Mike Crapo (R-ID), Jon Tester (D-MT) and Dean Heller (R-NV) which also encourages FHFA to expand and better define the development of credit risk transfer programs.”

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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.

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Press Release: New Paper from Goodman, Parrott and Zandi Analyzes Risk Sharing Options

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For Immediate Release

December 3, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

New Paper from Goodman, Parrott and Zandi Analyzes Risk Sharing Options

As momentum is growing to further de-risk the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, it is essential that policymakers have access to rigorous and thoughtful analysis of all the options.  To that end, Laurie Goodman, Jim Parrott and Mark Zandi released an excellent paper – Delivering on the Promise of Risk Sharing – that examines the various front and back end risk sharing options in order to facilitate “a full understanding of the trade-offs will only be understood as the different structures are tested in the market.”

USMI welcomes this kind of rigorous analysis, which concludes that frond end risk sharing with MI potentially satisfies all of the essential goals – from reducing taxpayer risk and maintaining broad borrower access to credit to minimizing volatility and maximizing transparency.  All policymakers who are intent about how to de-risk the GSEs in the absence of comprehensive housing finance reform are well-served and should be guided by this thoughtful analysis.

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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.

Download as PDF

Statement: Luetkemeyer – McHenry Letter to FHFA Director Watt

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For Immediate Release

December 2, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Luetkemeyer – McHenry Letter to FHFA Director Watt

 

Statement by Lindsey Johnson, President and Executive Director of USMI

“Today, Representatives Blaine Luetkemeyer and Patrick McHenry sent a letter to Federal Housing Finance Agency Director Watt ‘regarding the transactions that Fannie Mae and Freddie Mac (the Enterprises) enter in order to share mortgage credit risk with private market participants.’ According to the letter, ‘[w]hile we strongly support these transactions as a mechanism for mitigating credit risk to the Enterprises and U.S. taxpayers, we are concerned that the focus for these transactions has been too heavily concentrated on back-end credit risk sharing. Accordingly, in order to expand the scope of risk sharing and to avoid favoring one approach to risk sharing over another, we believe that the Federal Housing Finance Agency (FHFA) should require the Enterprises to also explore and engage in diverse forms of front-end credit risk sharing.’

USMI members applaud Representatives Luetkemeyer and McHenry, Chair of the House Financial Services Committee’s Housing and Insurance Subcommittee and House Financial Services Committee Vice Chairman, respectively, for their leadership and advocacy on this important issue.

In advance of the upcoming release of FHFA’s 2016 Scorecard, taxpayers still face significant exposure to losses from another housing downturn. Front-end risk share transactions transfer the risk of loans before they ever reach the GSE’s balance sheets. As outlined in the letter, the benefits of front end risk sharing are clear. USMI agrees that there should be a greater balance between front and back end credit risk transfers. Of the several ways that the GSEs can conduct front-end risk share transactions, using MI on the front end is one of the easiest, most readily available forms that would be accessible to a vast majority of lenders today.

Momentum is growing to expand front end risk sharing with MI, and USMI members are ready to do more to de-risk the housing finance system while enhancing homeowners’ ability to borrow in an affordable way.”

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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.

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Article: Risk Sharing Transactions: Front End vs. Back End

USMI president Lindsey Johnson recently sat down for a Q&A discussion on risk sharing with DS News. Below is a portion of her discussion.

Lindsey Johnson currently serves as U.S. Mortgage Insurers (USMI) President and Executive Director. Johnson previously served as a Director on PwC’s public policy team, where she engaged policymakers on key public policy issues that impacted the firm. Prior to joining PwC, Lindsey was a former member of the Senate Banking Committee staff as the Minority Staff Director for the Senate Banking Committee’s National Security and International Trade and Finance (NSITF) Subcommittee, and served as Senior Policy Advisor to Senator Mark Kirk (R-Illinois), focusing on noteworthy banking, housing finance reform, and insurance legislation.

What is the difference between front-end risk sharing and back-end risk sharing?

The biggest difference is the fact that upfront risk sharing transactions de-risk the GSEs, or transfer the credit risk from the loans, before they hit the GSE’s balance sheets. Back-end CRTs require the GSEs to warehouse that risk for a period of time, and the GSEs decide what credit risk they’re going to offlay and who the counterparties will be. USMI members have done both, so we would not say that back-end transactions are bad. We actually are very supportive. However, one of the drawbacks or distinctions between the two, specifically back-end CRTs, is that the risk is on the balance sheets on the GSEs is subject to credit swings, which is partially what happened with the widening of the credit spreads at Freddie Mac last month when they experienced a loss.

Other challenges and drawbacks to the back-end transactions is that there is not a lot of pricing transparency to date. Also, smaller institutions have not been able to participate in the transactions. Front-end transactions provider a lot greater pricing transparency and can be accessible for the vast majority of lenders of all types and sizes, so that’s one of the benefits of front-end transactions.

Why do you think the GSEs have engaged in mostly back-end risk sharing to this point?

The FHFA reported in their white paper back in August that since 2012, the GSEs have purchased approximately $3 trillion in mortgage loans, of which just over around 20 percent of the loans—about $667 billion in unpaid principal balance—has been transferred via riskshare, but out of that, less than 1 percent of the risk has been transferred via front-end risk sharing. I think part of the reason, and it’s pretty understandable if this is the case, is that the GSEs can control the process in the entire back-end transfer process. Especially when you consider early versions of STACR (Structured Agency Credit Risk) and CAS (Connecticut Avenue Series) transactions, where they were really designed to move large portions of unexpected loss from the GSEs balance sheet, it makes sense because they were experimenting in the beginning.

Today, the GSEs are a lot better at risk transfer. The products and the markets themselves have started to evolve, and the GSEs are starting to transfer both expected loss and catastrophic loss. The products have evolved and the market players themselves are able to transfer this risk pretty seamlessly. It’s becoming a part of their everyday routine. So at least in the beginning, it seems, they were experimenting and trying to control the entire process.

Now that we have a much better sense of how this works operationally and how credit risk transfer can work both on the back end and the front end, I think we should start focusing on transactions that are scalable and repeatable just as FHFA continues to say they want to do. Also, they should lay the groundwork for a system that is accessible to a majority of market players. It doesn’t make sense to return to a system that advantages some market players over others. Knowing that comprehensive housing finance reform isn’t coming in the near term, we think it’s imperative that FHFA and the GSEs adhere to principles that nearly every industry and consumer group, as well as policy makers, have said are really critical to the housing finance system going forward. They need to begin laying the groundwork now. Those principles are very broad, of course: having greater private capital, which they are very focused on; greater transparency on pricing, and demonstrating the impact to the borrower; and then equitable access for smaller lenders, and lenders of all sizes and types in mortgage finance. So having a greater balance of front-end transactions is something that we are really pushing FHFA and the GSEs to experiment with in 2016.

To read the entire Q&A discussion with USMI president Lindsey Johnson click here

Statement: Highway Bill Passage

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For Immediate Release

December 1, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Highway Bill Passage

Statement by Lindsey Johnson, President and Executive Director of USMI

“USMI applauds the conference agreement for a multi-year surface transportation authorization bill, one that importantly continues to reject the use of mortgage credit risk guarantee fees (g-fees) charged by the housing finance enterprises, Fannie Mae and Freddie Mac, as a source to finance the extension of federal highway programs.

USMI members are grateful that Congress refrained from adding an additional fee to mortgages for unrelated expenses, which would pose undue and unnecessary costs to current and future homeowners.”

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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.

 

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Statement: MBA Letter to FHFA Director Watt

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For Immediate Release

December 1, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on MBA Letter to FHFA Director Watt

Yesterday, the Mortgage Bankers Association (MBA) sent a letter to FHFA Director Mel Watt urging action to reduce the continued taxpayer risk exposure posed by the housing GSEs, Fannie Mae and Freddie Mac. The letter specifically calls on the FHFA to require greater use of up-front risk sharing by the GSEs, particularly with deeper private mortgage insurance (MI) coverage, to de-risk loans before they are acquired by the GSEs.

MBA President and CEO Dave Stevens highlighted the “imperative that the GSEs reduce their retained risk in order to avoid any increase in taxpayers’ investment in the enterprises,” and stated that “multiple forms of up-front risk sharing should be piloted including deeper cover mortgage insurance (MI).” Stevens goes on to say that risk sharing “should not advantage certain lenders relative to others” and that “[the MI] approach would be operationally easiest for the vast majority of lenders.” In addition, the MBA letter detailed reasons why the MI industry is such a reliable counterparty and well positioned to bear additional housing finance risk.

USMI could not agree more. The MI industry has covered more than $50 billion in claims to the GSEs since the beginning of the financial crisis, resulting in substantial taxpayer savings. USMI member companies never stopped paying claims, and never stopped writing new coverage. MIs are subject to rigorous new capital and operational standards under the Private Mortgage Insurer Eligibility Requirements (PMIERs) issued by the GSEs with oversight by FHFA. The MI industry has attracted billions in new capital since the crisis, and is well positioned to raise even more. Further, as of October 2014, MIs operate under new master policy agreements, which provide assurances about the consistent handling and payment of mortgage insurance claims and bring greater transparency and clarity to contractual protections for lenders and investors.

We look forward to working with FHFA, the GSEs and lenders of all sizes in making progress towards a more sustainable housing finance system that is less risky for taxpayers, while ensuring access to creditworthy borrowers.

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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.

 

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