Author: Natalie

Statement: USMI Statement on Proposed Mortgage Insurance Policy Changes

Posted on by Natalie

Seth Appleton, president of U.S. Mortgage Insurers, issued the below statement on proposed mortgage insurance policy changes announced by Director of Federal Housing (FHFA) Bill Pulte:

“USMI supports the work of Director Pulte and the Trump Administration to improve housing affordability. Private mortgage insurance helps homebuyers achieve the dream of homeownership without the need for a large cash down payment and it has become even more affordable in recent years with premium rates declining 25% or more since 2017, driven by robust competition in the market and lower corporate tax rates enacted during President Trump’s first term. Aligning Fannie Mae with Freddie Mac’s policy so servicers can proactively reach out to borrowers is an action that we support.

“In 2025 alone, private MI saved the average homebuyer $48,000 in cash due at the closing table. And, starting this year, the Working Families Tax Cuts Act restored the deductibility of private and government MI premiums for eligible households, making low down payment homeownership even more affordable.

For more information on the many benefits of private MI, including its temporary nature, please visit our website.”

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

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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

Letter: Improving Housing Affordability Through Bank Capital Modernization

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On February 20, USMI joined a coalition of housing and 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. USMI and its fellow signatories stand ready to serve as resources to regulators to assist in their bank capital modernization efforts. Click here to read the full letter.

Statement: FHA’s FY2025 Annual Financial Report to Congress

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WASHINGTON — Seth Appleton, President of U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, issued the following statement on the release of the Federal Housing Administration’s (FHA) Fiscal Year 2025 Annual Report to Congress on the financial status of the Mutual Mortgage Insurance Fund (MMIF):

“FHA must remain well-capitalized in order to perform its critical countercyclical function in America’s housing market and enable access to mortgage credit for those who may not otherwise be able to secure financing through the conventional and portfolio mortgage markets that are backed by private capital. We commend HUD Secretary Scott Turner and FHA Commissioner Frank Cassidy for their prudent stewardship of the MMIF in 2025. While the MMIF Capital Ratio stands at 11.47% with Total Capital Resources for the forward program at 8.25%, USMI urges policymakers to continue the current disciplined approach to ensure the long-term health of the MMIF, while also considering modernized stress-based, loan-level risk-weighted standards for FHA similar to the frameworks applied to Fannie Mae and Freddie Mac (the GSEs) and the private MI industry in order to withstand times of severe economic stress.”

To increase transparency around the fiscal condition of the MMIF and FHA’s forward mortgage program and contextualize the numbers published in the Annual Report, USMI previously commissioned a third-party actuarial firm to estimate the risk-based capital FHA would be required to hold if subject to the same stress-based, loan-level risk-weighted capital frameworks as private mortgage insurers and the GSEs, as compared to FHA’s Total Capital Resources for the forward program stated in last year’s Annual Report to Congress.

If held to the same capital standard that private mortgage insurers must meet to insure loans acquired by the GSEs in the conventional market, the Private Mortgage Insurer Eligibility Requirements (PMIERs), it is estimated that FHA’s Total Capital Resources for the forward program, as of the end of FY2024, would run a $31.7 billion shortfall. Similarly, as of the end of FY2024, FHA would need to hold $50 billion more to meet the GSEs’ capital framework’s minimum requirement if applied to FHA’s book of business.

Read USMI’s full policy brief here to learn more about why policymakers should consider modernizing FHA’s Capital Ratio to ensure safety and soundness in the housing finance system.