Month: July 2026

Factsheet: What Others Are Saying About MI in Bank Capital Rules

Posted on by Natalie

Financial institutions and stakeholder groups agree that recognizing private mortgage insurance (MI) in the proposed bank capital rules is critical to serving creditworthy borrowers without access to large down payments. Dozens of commenters on the proposed rules advocated for recognizing private MI in calculating a mortgage’s LTV ratio for risk-weighting purposes. Here’s just some of what they had to say:

 

  • “The agencies should recognize private mortgage insurance when calculating LTV for risk-weighting purposes, subject to an appropriate counterparty haircut, to avoid regressively disadvantaging first-time and first-generation homebuyers.” – National Housing Conference (NHC)

 

  • “However, the proposal may disadvantage creditworthy borrowers with limited funds for a large down payment because banks are likely to charge more for high-LTV loans. This price increase will disproportionately impact first-time and low- and moderate-income home buyers who already face increased challenges due to the lack of affordable housing and limited supply.” – National Association of Homebuilders (NAHB)

 

  • “WBA also supports several targeted refinements raised more specifically in other industry comment letters, including reconsideration of the risk weight applied to mortgage servicing assets, explicit recognition of private mortgage insurance as a credit risk mitigant, and a closer look at the operational risk add-on embedded within the standardized approach’s mortgage and corporate risk weights.” – Wisconsin Bankers Association (WBA)

 

  • “We recommend that PMI be credited in the calculation of risk weights for first-lien, owner-occupied bank mortgage exposures in light of the aforementioned changes in the mortgage insurance industry since the financial crisis, the statistical evidence demonstrating the credit risk reduction afforded by mortgage insurance, and the fact that mortgage insurance is recognized as a significant credit risk mitigant by the GSEs and their federal regulator.” – Housing Policy Council (HPC)

 

  • “Without the acknowledgement of the role of PMI and its potential to avoid losses, banks are further incentivized to avoid providing high-LTV loans, often to the market segments that need it most.” – National Association of REALTORS®

 

 

  • “PMI provides effective credit protection on higher LTV mortgages, reducing loss severity on loans where borrower equity is limited… ICBA believes that PMI provides sound credit protection for mortgage loans originated for sale in the secondary market as well as those retained in a bank’s portfolio. From a policy perspective, it is reasonable to recognize that PMI meaningfully reduces loss severity on higher LTV loans—often to levels comparable to those observed on lower LTV exposures.” – Independent Community Bankers of America (ICBA)

 

  • “Under the Proposals, a high LTV loan would be assigned an elevated risk weight even if a substantial portion of the credit risk is transferred to a private mortgage insurer through PMI. The borrower thereby effectively pays for the same risk twice: once in PMI premiums and again through the higher cost of capital passed through by the bank…The Agencies have requested comment on whether the rule should recognize the risk mitigating effect of PMI for RRE exposures, and MBA strongly recommends that they do so. The post-Great Financial Crisis capital and regulatory regime governing the private mortgage insurance industry supports recognition of PMI. Recognizing PMI or equivalent credit enhancement such as readily marketable collateral provides depository institutions with appropriate incentives to reach first-time and underserved homebuyers who cannot make a 20% down payment.” – Mortgage Bankers Association (MBA)

 

  • “The FHLBanks also support the recognition of Private Mortgage Insurance (“PMI”) as a significant risk mitigant that should be factored into calculations of risk-weighted assets.” – Council of Federal Home Loan Banks

 

  • “The proposed new risk weighting would make it substantially more costly for banks to originate high-LTV loans, resulting in fewer home purchase options for low- and moderate income families.” – National Council of State Housing Agencies (NCSHA)

 

  • “By excluding PMI as a mitigating factor in determining risk weights, it may result in capital requirements that overstate economic risk. In particular, the framework’s reliance on gross LTV without adjustment for PMI coverage may fail to capture the reduction in loss severity achieved through insurance protection. As a result, the Proposed Rule may weaken the economic incentive to originate loans supported by PMI—despite its demonstrated role in absorbing losses—and create a disconnect between regulatory capital requirements and the true risk profile of insured residential mortgage assets.” – BayCoast Bank

 

  • “The exclusion of PMI from the risk-weighting framework overstates credit risk on loans with high loan-to-value (LTV) ratios that are otherwise supported by strong credit enhancements. This exclusion reduces the economic incentive to originate loans with PMI, despite its demonstrated role in loss mitigation circumstances and loan performance. This also creates inconsistency between regulatory capital treatment and the actual risk profile of insured mortgage assets.” – First Mutual Holding Co.

 

  • “In addition, the agencies may wish to consider explicit recognition of private mortgage insurance as a credit risk mitigant, supported by empirical evidence demonstrating reduced loss severity.” – Valley National Bancorp & Valley National Bank

 

  • “Excluding PMI from the LTV calculation understates the risk mitigation already present in many mortgage portfolios and may discourage banks from requiring PMI on higher-LTV originations, which is a counterproductive outcome from a safety and soundness perspective.” – Axos Bank

 

  • “Gateway supports explicit recognition of private mortgage insurance in the calculation of the LTV ratio used to determine risk weights, subject to appropriate eligibility standards… The alternative of ignoring PMI entirely is inconsistent with the actual economic risk reduction provided by the insurance and disadvantages community banks that originate responsibly underwritten high‐LTV loans to first‐time homebuyers.” – Gateway First Bank

 

  • “Getting this calibration correct is paramount – a framework that acknowledges PMI’s risk-mitigating role for safety and soundness purposes but ignores it for capital purposes leaves capital requirements misaligned with the actual risk profile of insured mortgage exposures.” – Fifth Third Bank

Comment Letter on “Enterprise Duty to Serve Underserved Markets”

Posted on by Digital CLS

On July 24, USMI submitted a comment letter in response to the U.S. Federal Housing (FHFA) Notice of Proposed Rulemaking (NPR) on “Enterprise Duty to Serve Underserved Markets.” USMI supports FHFA’s consideration of advances in manufactured housing and the opportunity to better serve homebuyers who purchase it. Additionally, USMI recommends that FHFA incorporate private MI and primary first-loss credit enhancement into the safety and soundness evaluation for any new product or activity to ensure that homebuyers are affordably and sustainably served, while private capital absorbs credit losses. Click here to read the full letter.