Recognizing private mortgage insurance in bank capital regulations could increase access to mortgage credit and make homeownership more affordable for first-time and working-class borrowers
WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, recently submitted a comment letter to the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively the Agencies) in response to two Notices of Proposed Rulemaking (NPRs) on Regulatory Capital Rules that would modernize bank capital requirements for assets held on balance sheet, including residential mortgages.
“USMI strongly supports the Agencies’ efforts to create a more risk-sensitive framework that reflects the true credit risk of residential mortgages, and recognition of private mortgage insurance in mortgage exposure risk weights supports that goal,” said Seth Appleton, President of USMI. “Aligning capital treatment to acknowledge the role that private MI plays in mitigating risk in the housing finance system would allow banks to more efficiently serve first-time homebuyers and working families pursuing the American Dream.”
In its comment letter, USMI urged the Agencies to make the following targeted changes in the final rule:
- Recognize private MI coverage in the calculation of a mortgage’s loan-to-value (LTV) ratio for the purposes of assigning risk weights, with capital relief calibrated to the depth of MI coverage. Third-party actuarial analysis from Milliman of more than 90 million loans over a 25-year period found that private MI reduces net loss severity on insured high-LTV loans to below the gross loss severity observed on loans with LTVs between 60% and 80%. Crisis-vintage loans (2005-2009) with LTVs above 90% and private MI coverage had net loss severity of just 29%, compared to 52% gross loss severity for the 60-80% LTV benchmark.
- Apply a counterparty haircut to private MI coverage that does not exceed 14.2%. This is aligned with the Federal Housing Finance Agency’s (FHFA) Enterprise Regulatory Capital Framework (ERCF) – the most comprehensive U.S. capital framework for mortgage credit risk, supporting consistency across federal regulatory frameworks.
- Clarify the “Eligible Guarantor” definition to permit highly rated, well-capitalized private MI companies to participate in bank credit risk transfer (CRT) transactions, bringing additional private capital into the U.S. banking system and reducing reliance on government-backed alternatives.
“The private MI industry exists precisely to absorb losses on high-LTV loans so that lenders, the government-sponsored enterprises (GSEs), and taxpayers are protected from risk,” added Appleton. “The Agencies’ final rule should reflect the same safety and soundness benefits of private MI that the Agencies have already recognized in prudent underwriting standards when calculating and assigning capital requirements for residential mortgage exposures.”
In February, USMI joined a coalition of housing in banking industry stakeholders in sending a letter to banking regulators in support of efforts to modernize bank capital standards to strengthen financial stability and housing affordability. The groups wrote that a revised Basel III Endgame rule should support the critical role that private mortgage insurance (MI) plays in reducing risk for taxpayers while preserving and enhancing mortgage finance options for homebuyers. This includes providing loan-level capital relief commensurate with the level of private MI coverage and adjusting the Eligible Guarantor definition to include private mortgage insurers.
For nearly 70 years, the private MI industry has served lenders, the GSEs, the U.S. government, and taxpayers as an effective and resilient form of private capital, standing as the first layer of protection against credit risk and mortgage defaults, while enabling access to mortgage credit for borrowers without large down payments. In 2025 alone, more than 800,000 borrowers purchased a home or refinanced a loan with private MI, accounting for more than $311 billion in originations. Collectively, private MI saved American homebuyers more than $35.3 billion in down payment costs in 2025 by using private MI rather than waiting to accumulate a 20% down payment.
To read USMI’s full comment letter, click here.
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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.
