The Honorable Mark A. Calabria
Director Federal Housing Finance Agency
400 7th Street SW Washington, DC 20019

Dear Director Calabria:

On behalf of U.S. Mortgage Insurers (USMI) and our member companies, we appreciate the opportunity to provide feedback on the Federal Housing Finance Agency’s (FHFA) initiatives to modernize appraisal processes and to the specific questions presented in the Request for Information (RFI) on Appraisal-Related Policies, Practices, and Processes. As a general matter, the private mortgage insurance (MI) industry understands and agrees with the FHFA that there are opportunities to modernize appraisal processes and to improve the quality of residential property valuation practices. There have been significant advancements in technology, data aggregation, and analytics throughout the mortgage finance industry that have positively impacted many professions and processes. Collateral risk assessment and real estate valuation can benefit from these same technological advancements if done appropriately. As Fannie Mae and Freddie Mac, collectively the government-sponsored enterprises (GSEs), seek to modernize their appraisal policies and collateral valuation technologies, USMI strongly believes that the FHFA should implement rules designed to ensure that innovations around the appraisal process are done when there is demonstrable benefit to the broader housing finance system, including greater transparency, efficiency, accuracy of property valuations, and lower costs for borrowers and market participants. While we provide specific comments, observations, and recommendations to many of the issues raised and questions posed in the RFI in our responses in Appendix A, our initial comments below focus primarily on the increased use of appraisal waivers through 2020, as well as specific observations related to the above 80 percent loan-to-value (LTV) segment of the market and recommendations to address areas of increased risks.

Balancing Innovation & Prudent Mortgage Lending

USMI and our member companies recognize that there is an opportunity through appraisal modernization to address many of the existing challenges within the appraisal process, including those that stem from the shortage of qualified appraisers in the market and the unique challenges in rural markets of getting appraisers and having comparable properties for valuations. Given the standardization role that the GSEs play within the marketplace, as well as their dominant market presence, there is an opportunity for industry stakeholders and the GSEs to come together to promote appropriate solutions that drive efficiencies and lead to more accurate valuations in a way that appropriately balances risk and operational flexibility.

At the same time, USMI members continue to appreciate the role of appraisers in the mortgage underwriting process, especially since automated or model-based solutions may not be appropriate for certain properties and transactions. Importantly, for homebuyers, an appraiser’s inspection report serves to affirm, when appropriate, the reasonableness of home price discovery via an arms-length negotiation.

USMI members also acknowledge that appraisal technology has the potential to improve the efficiency of the mortgage underwriting process, however it is critical that there be appropriate transparency, monitoring, and governance. Modernization should be accompanied by guardrails to minimize the risk of incorrect collateral valuation outcomes and any adverse effects on mortgage underwriting. Further, model weaknesses and discrepancies, and ways to mitigate for those weaknesses, should also be considered for determining when and how to use these technologies. It is important that FHFA establish policies that ensure collateral valuation, including the use of competing technologies, such as the two GSEs’ collateral valuation tools, are not a source of competition between the GSEs. When used inappropriately, these tools have the potential to increase risk beyond their expected benefits to the housing finance system.

Many of the ongoing appraisal modernization efforts by the GSEs have led to general process improvements, however it is very important to recognize that automated valuation models (AVMs) and other alternatives to a full appraisal are not appropriate for every property or transaction. USMI believes they should be used in limited circumstances, and only with appropriate guardrails, particularly for higher LTV mortgages where risk is higher and valuation errors may have greater significance.

Data Democratization

The GSEs’ appraisal modernization initiatives have significantly expanded data requirements during the mortgage origination process, with the burden often falling on lenders, mortgage insurers, and other market participants to provide data that informs mortgage underwriting. Industry stakeholders have worked closely with the GSEs since the 2010 launch of the Uniform Mortgage Data Program (UMDP) to implement data collection procedures and technologies to provide data to the GSEs. Despite industry’s commitment to the UMDP and increased data integrity of the Uniform Residential Appraisal Report (URAR), market participants currently do not have a great deal of access to this important data repository. Access to this data would improve market participants’ operations, ultimately benefitting homebuyers and the strength of the housing finance system.

USMI recommends that the FHFA initiate a process to make collateral valuation data available to the parties that contributed to the analysis and that are part of the underwriting process, including appraisers and appraisal management companies, lenders, private mortgage insurers, title insurance companies, investors, and data analytics providers. Greater insight into the GSEs’ collateral valuation technologies and processes will assist with analyses of individual mortgage transactions. Further, the FHFA should implement policies that require the GSEs to share more information about their AVMs, including the tolerances that are incorporated. Data democratization will greatly enhance transparency within the housing finance system and improve risk management practices and strategies across the market.

GSE Appraisal Waiver Policies

One element of the GSEs’ appraisal policies, practices, and processes that we believe warrants particular attention is the expanded use of appraisal waivers for high LTV refinance transactions. While both GSEs have had appraisal waiver programs for nearly a decade, specifically with some of the changes made during 2020, there has been a significant expansion of these programs during the mortgage underwriting process. The share of GSE-backed mortgages receiving appraisal waivers has surged, including a dramatic increase in the use of appraisal waivers for higher LTV loans.

As an industry that is exclusively focused on high LTV mortgage originations, USMI welcomes the opportunity to share our observations concerning the expansion of appraisal waivers in that segment of the market. Appraisal waivers can materially impact LTV ratios and the pricing and risk assessments associated with the GSEs’ guarantee fees, MI premiums, and loan-level capital requirements.3 Importantly, these considerations are more acute for higher LTV loans since the margin of error is slim for these mortgages and could expose the GSEs and the housing finance system to greater credit risk.4 Inaccurate valuations that result from appraisal waivers could enable delivery of loans with LTVs that arbitrarily – and inappropriately – misprice or eliminate MI credit risk protection. Additionally, automated and index-based valuations rely on broader price trends that can overshadow local or property-specific conditions that would point to higher LTVs. Furthermore, the different approaches to appraisal waivers by the two GSEs create frictions that appear to be incentivizing undesirable lender behaviors and further exacerbating these risks.

Industry Observations – Overall Increase in Appraisal Waivers

While the use of appraisal waivers has increased since the onset of the COVID-19 pandemic, the uptick was most notable when the GSEs expanded appraisal waiver eligibility to mortgages with LTVs up to 90 percent in the spring of 2020. Despite the changes that allowed for the significant increase of appraisal waivers, there was little transparency of data around why these changes were necessary, what outcomes they might have, and what guardrails were in place. In January 2020, approximately 85 percent of 80.01-90 percent LTV, rate/term refinance loans at the GSEs received full appraisals and only 15 percent of loans received appraisal waivers, exclusively through Fannie Mae’s program.5 There was a significant decrease in mortgages with full appraisals throughout 2020 and by October 2020, only about 50 percent of GSE-backed 80.01-90 percent LTV, rate/term refinance mortgages received full appraisals.

Industry Observations – AUS Shopping

As a general matter, USMI believes FHFA and the GSEs should establish clear guidelines to ensure that collateral valuation, including the use of different appraisal methodologies and models, is not a source of competition between the two GSEs. Following an internal study of “repeat address transactions” (i.e., transactions where data on the most recent valuation and a prior valuation are available), USMI member companies have noticed significant – and in some respects concerning – differences in valuations between the two GSEs’ respective appraisal waiver programs. FHFA should be mindful of the potential for systemic overvaluations with one of the GSEs’ programs when benchmarked to a local housing price index (HPI) and recognize the lack of transparency around the GSEs’ valuation technologies. This could manipulate the mortgage market and result in lenders’ increased utilization of a specific GSE’s automated underwriting and collateral valuation systems to receive favorable property valuations.

USMI members have also observed, and shared our observations with FHFA, that some lenders appear to be “AUS shopping” to optimize loan execution by testing Fannie Mae’s Desktop Underwriter (DU) and Freddie Mac’s Loan Product Advisor (LPA) for a potential appraisal waiver valuation “advantage.” Our industry has seen compelling evidence that lenders are increasingly running loans through both AUSs to determine which one allows the most “advantageous” property valuation. It is important to note that each GSE conducts a validation when it assesses its own model, a process that does not make presumptions about the other GSE’s model and where it may fail. Applying the two models to the same loan is inconsistent with how they’re validated and effectively undermines the credibility of the GSEs’ own validation processes. The GSEs themselves are aware of the “gaming” potential and USMI strongly encourages the GSEs to take actions to address this concern and prevent inappropriate gaming that might occur through the use of the appraisal waiver valuations.

Industry Observations – Compensating Factors for Appraisal Waivers

USMI members have conducted a forensic analysis of loan files with appraisal waivers and found that both GSE appraisal waiver programs consistently missed adverse site conditions that would have been apparent to a trained appraiser. A primary drawback of appraisal waivers is that they miss critical property data during the valuation process that should be collected and analyzed as part of the underwriting process. While property data need not be concurrent with a refinance transaction, recent data is important to industry participants, especially those with a vested interest in mortgage credit risk post-closing.

While the use of appraisal waivers has dramatically increased, there has been minimal transparency concerning whether the GSEs have specific credit policies regarding loan eligibility for their respective appraisal waiver programs. The expanded use of appraisal waivers should be accompanied by a transparent set of compensating factors for determining loan-by-loan waiver decisions. Data from 2020 suggests that at least one of the GSEs takes into account debt-to-income (DTI) ratio, credit score, and whether the borrower has a prior full appraisal on file. USMI believes these types of overlays are appropriate to mitigate the incremental risk of appraisal waivers. While not directly tied to collateral valuation, weaker DTIs and credit scores may correlate to deferred maintenance and property condition issues that go undetected when appraisal waivers are utilized.

Property data collection is a particularly important part of the valuation and underwriting processes. One appropriate guardrail for mortgages that receive appraisal waivers or other flexibilities would be to require a property inspection followed by a Desktop Review. One of the biggest challenges with the appraisal waiver programs is that property data collection is missed, and this policy would help mitigate the risk associated with underwriting a mortgage without a full appraisal.

Recommendations

Many of the appraisal modernization efforts of the GSEs over the years have led to general process improvements, however it is very important to recognize that AVMs and other alternatives to a full appraisal are not appropriate for every situation. For the reasons outlined above, USMI believes appraisal alternatives should be used in limited circumstances, and only with appropriate guardrails. To better tailor the use of appraisal waivers, it is critical that the GSEs’ programs be subject to robust oversight by FHFA and that strong governance policies be in place to promote transparency and facilitate data sharing with market mortgage market participants. It is especially important that the FHFA implement policies that recognize and speak to the unique risks associated with the use of waiver appraisals in the high LTV segment of the market. As the equity position on a mortgage decreases, the risk of loss severity can increase, and these mortgages cannot merely rely on amortization or home price appreciation (HPA) to guard against risk stemming from incorrect AVM valuations. FHFA and the GSEs should implement policies to address the potential for “gaming” to test and shop appraisal waiver programs to reduce LTVs and/or reduce or eliminate MI coverage requirements. Particular attention should be given to the 80 percent LTV threshold, which is a segment of the market that has historically been the largest contributor of GSE losses. The usage of appraisal waivers to “game” the 80 percent LTV segment to reduce or eliminate MI coverage shifts a greater burden of losses toward taxpayers and away from private capital. Further, while LTV is – to some degree – correlated to loan performance, guardrails such as the presence of compensating factors should be considered to inform policies that pertain to this specific segment of the market.

****************************

USMI appreciates the opportunity to share its views on these important issues with the FHFA. We welcome any questions you may have, as well as requests for data to supplement our observations and recommendations. USMI welcomes efforts by FHFA to properly balance innovation in the housing finance system with the need for transparent standards and appropriate protections.

Sincerely,

Lindsey Johnson
President

View the full letter as a PDF.

Dr. Mark A. Calabria
Director
Federal Housing Finance Agency
Constitution Center
400 7th Street SW
Washington, DC 20219

Dear Director Calabria:

U.S. Mortgage Insurers (USMI) represents America’s leading providers of private mortgage insurance (MI) and our members are dedicated to a strong housing finance system backed by private capital that enables access to prudent and sustainable mortgage finance. The MI industry has more than 60 years of expertise in underwriting and actively managing mortgage credit risk to balance access to affordable credit with protecting Fannie Mae and Freddie Mac (the GSEs) and the American taxpayer from mortgage credit-related losses. During that time, the MI industry helped more than 33 million households achieve sustainable homeownership, including more than 1.3 million in the past year alone.

On September 22, 2020 the Federal Housing Finance Agency (FHFA) released its “Strategic Plan: Fiscal Years 2021-2024” (Strategic Plan) that establishes goals for FHFA to fulfill its statutory duties as both regulator and conservator of the GSEs. USMI appreciates the opportunity to submit input on the Strategic Plan and provide feedback on the framework and requirements for forthcoming FHFA actions. At a high level, USMI commends FHFA for formalizing the establishment of its new strategic goals to: (1) ensure safe and sound regulated entities through world-class supervision; (2) foster competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets; and (3) position the FHFA as a model of operational excellence by strengthening its workforce and infrastructure. USMI supports these goals and they are consistent with the observations and recommendations outlined in our October 2018 administrative reform report.

A primary goal of the Strategic Plan is to take actions that strengthen the operations and oversight of the GSEs to support their exit from conservatorship. This is consistent with the Administration’s March 2019 “Memorandum on Federal Housing Finance Reform,” which called on the U.S. Department of the Treasury (Treasury) to develop a plan to “End[] the conservatorships of the GSEs upon the completion of specified reforms” and Treasury’s subsequent “Housing Reform Plan” which stated that “In parallel with recapitalizing the GSEs, FHFA should begin the process of ending the GSEs’ conservatorships.” While it will ultimately fall to Congress to complete the difficult work of making permanent and structural changes to the housing finance system, despite a number of legislative proposals over the past 12 years, Congress has yet to pass comprehensive reform. Though congressional action is still needed to provide for the necessary structural reforms, including a transparent and paid-for explicit guarantee of the GSEs’ mortgage-backed securities, the FHFA and Administration can take certain actions to further reduce taxpayer risk exposure, level the playing field, and provide greater transparency regarding GSE pricing and practices—ultimately to put the GSEs and the housing finance system on more stable footing going forward.

Over the summer, the FHFA re-proposed a post-conservatorship capital framework for the GSEs, which you have routinely characterized as the most important rulemaking that will occur during your time as Director. As indicated in our comment letter, USMI urges FHFA to adopt appropriate capital standards for the GSEs and believes that a well calibrated capital framework is a critical reform. However we also strongly believe that additional reforms are necessary, including reforms that reflect the lessons learned during and since the 2008 financial crisis, reduce the GSEs’ duopolistic market dominance, and create long-term safety and soundness in the housing finance system. These reforms, if done correctly, will help to reduce taxpayer risk exposure and ensure that home-ready Americans continue to have sustainable access to prudent mortgage finance credit. Further, actions taken by the FHFA and Administration should help facilitate, not inhibit, Congress’ ability to complete comprehensive housing finance.

As Director of the FHFA, you have previously indicated that the agency “will continue to engage with Treasury to develop a responsible plan to end the conservatorships—with a clear road map and mile markers—and to adjust the Treasury share agreements accordingly.” We are pleased that there are specific “mile markers” and reforms that will have to be met prior to ending the conservatorships of the GSEs. These reforms and mile markers should be met before the GSEs exit conservatorship and are mostly possible if done by the Director of FHFA in his role as conservator. You have stated on a number of occasions your desire and intent to improve competition in the marketplace with the GSEs, noting that “[c]ompetition lowers prices, improves quality, and drives innovation…and ensure[s] no institution is ‘too big to fail.’” However, even if Congress were to provide FHFA the authority to grant charters to new guarantors, for competition to ever exist in the marketplace, the GSEs’ significant market advantages would have to be addressed. Over the decades—and particularly during their more than 12 years in conservatorship—the GSEs have made significant investments in proprietary systems and technologies that have made the mortgage finance system even more reliant on the GSEs. Addressing these vast advantages and implementing these reforms is necessary ahead of allowing the GSEs to build capital and exit conservatorship, where they would otherwise be able to leverage their existing capital and operational advantages to maintain their market dominance.

During conservatorship, stakeholders across the ideological spectrum have put forth a multitude of proposals and recommendations on housing finance reform. While they differ on various details, the proposals and recommendations have a critical similarity among them—they generally recognize that the GSEs should not be recapitalized and released before certain necessary meaningful reforms are completed and made permanent. Further, these proposals also include many common features for what should be considered “mile markers” to be met in advance of ending the net-worth sweep and ahead of the GSEs retaining capital. To varying degrees, many of the leading legislative and Administrative proposals for GSE reform have leaned on a utility-like secondary mortgage market function for the GSEs to reduce their current duopoly and market power in the mortgage finance system. Nearly all such proposals call for capping the GSEs’ rates of return, limiting their scope of activities to secondary market functions, and providing open and transparent access to the GSEs’ data, pricing, and technologies for private market participants, policymakers, and consumers. As to Congress, recent legislative proposals envision a role for the GSEs in a future housing system with an explicit government guarantee at the security level, call for the GSEs to ensure access for smaller lenders, and include transparent affordable housing requirements. These proposals signify that Congress feels there are critical functions currently imbedded in the GSEs and deems these functions/features necessary in a future housing finance system—either within the GSEs or placed in a separate utility or public exchange.

Ultimately, we believe that any actions taken by the Administration should seek to further four key policy objectives: (1) maintain what works in the current system; (2) further reduce taxpayer risk; (3) level the playing field between the GSEs and private market participants; and (4) provide greater transparency regarding the GSEs’ pricing and business practices. At a minimum, prior to the GSEs’ release from conservatorship, USMI urges FHFA to take the following administrative actions to achieve the above stated policy objectives:

1. Limit the GSEs’ activities to only those necessary for the GSEs to fulfill their intended role of facilitating a liquid secondary market for mortgages, preserving a bright line separation between primary and secondary market activities.
   
   Objective 2.1 of the Strategic Plan calls on the FHFA to “ensure the activities of the regulated entities stay within the boundaries of their charters and appropriately respond to market events and downturns.” USMI strongly supports policies and supervision that preserve the “bright line” separation between the primary and secondary mortgage markets. It is imperative that the GSEs’ activities be limited to the secondary mortgage market, as stipulated by their congressional charters which explicitly state that their purposes are to “provide stability in the secondary market for residential mortgages; to respond appropriately to the private capital market; to provide ongoing assistance to the secondary market for residential mortgages…; and to promote access to mortgage credit throughout the Nation.” Before the GSEs are released from conservatorship, FHFA should use its authority to implement regulatory guardrails to ensure the GSEs do not encroach on primary market activities and do not disintermediate private market participants. Infringements of the longstanding bright line serve only to increase the GSEs’ market dominance and diminish the role that private capital plays in the housing finance system. For instance, the selection of loan-level credit enhancement has been a function of the primary mortgage market for more than 60 years and it is critical that it remains as such going forward to ensure that a vibrant, competitive private MI market is maintained to benefit taxpayers and consumers, and to prevent greater entrenchment of the GSEs.
2. Increase transparency around the GSEs’ operations, credit decisioning, technologies, and role in the housing finance system.
   
   Implementing elements of a utility-like secondary market function for the GSEs, including transparency around their data, technology, and pricing, are appropriate guardrails that can help ensure the GSEs’ activities are within the bounds of their charters. Further, initiatives and technologies at the GSEs, such as those that seek to reduce the use of appraisals for purposes of assessing collateral during the underwriting process, can dramatically increase risk in the mortgage finance system if not done with transparency and in collaboration with other market stakeholders. Innovation, without proper guardrails and transparency, can further hardwire the GSEs’ automated underwriting systems (AUSs) into the broader housing finance system and complicate the prospects and logistics of enacting permanent structural reforms.
3. Require a “notice and comment period” process and prior approval of new products and activities.
   
   During their 12 years in conservatorship, the GSEs have developed and introduced programs, products, and pilots with little to no transparency, often representing expansions into areas of the mortgage finance system considered to be functions of the primary mortgage market. This includes pilots for guaranteeing loans for single-family rentals, financing a select group of large non-banks to support mortgage servicing operations, executing lender risk sharing credit risk transfer (CRT) transactions, and utilizing less regulated and capitalized forms of credit enhancement – Fannie Mae’s “Enterprise-Paid Mortgage Insurance” (EPMI) and Freddie Mac’s “Integrated Mortgage Insurance” (IMAGIN). These pilots were introduced into the market without transparency for stakeholders and without a comment period to receive industry input on both the need for the pilots and recommendations to improve their operations. In some cases, they were only made available to a select group of industry participants—generally at the sole discretion of the GSEs, thereby picking winners and losers among industry participants. More recently, FHFA has directed the GSEs to end some of these pilots, and has indicated it plans to release a Request for Input (RFI) or Notice of Proposed Rulemaking (NPR) regarding the prior approval of new products and programs at the GSEs. USMI strongly supports a regulatory mechanism to exercise greater scrutiny of new GSE activities to ensure they support the GSEs’ explicit public policy objectives and comply with their charters. New products, activities, and pilots should only be allowed when there is clear and compelling evidence that the GSEs are needed to fill a market void that the private market cannot meet. A robust approval process that complies with the Administrative Procedure Act (APA) and provides for input from market participants and stakeholders will help ensure that private capital plays a significant role in the mortgage market and prevent the GSEs from being further entrenched in the housing finance system.
4. Require that counterparty standards be set by the FHFA.
   
   Objective 2.1 of the Strategic Plan also calls on the FHFA to “establish standards for sellers, servicers, and counterparties to the regulated entities that strengthen the overall function and resiliency of the mortgage markets.” Private MIs are one of the only counterparties that have rigorous capital and operational standards, the Private Mortgage Insurer Eligibility Requirements (PMIERs), set by the GSEs and approved by FHFA, which were finalized through a public comment process. MIs must comply with the PMIERs standards in order to insure loans guaranteed by the GSEs. PMIERs ensure MI counterparty creditworthiness, as well as providing minimum standards for capital, operations, procedures, conflicts of interest, and other controls. USMI supports the FHFA promulgating strong risk-based capital and operational standards for all credit enhancement providers to ensure the availability of first-loss, loan-level credit enhancement across market cycles.
   
   The Administration has an opportunity to promote greater transparency and oversight of the GSEs and their counterparties and to correct what has proven to be at times a conflicting role that the GSEs play by both setting standards for market participants and then competing against these same private market participants. Lenders and other market participants should feel confident that they can access the secondary market on a level playing field with their competitors, based on clear and transparent standards. While diminished under a more utility-like system, there will still be a conflict for the GSEs to set counterparty standards, as there will continue to be opportunities to arbitrage the rules to compete with the private market and/or to pick winners and losers in the marketplace. A further post-conservatorship complication is that the GSEs may not continue to collaborate on PMIERs updates and the existence of two competing eligibility standards could cause market arbitrage opportunities and market distortions. Therefore, FHFA, under its authority and responsibility as regulator, should remain intently engaged in the development and approval of PMIERs. It is also important that the FHFA create transparent and consistent/comparable standards that promote a level playing field across counterparties.
   
   Further, consistent with nearly all other federal financial regulatory regimes, the FHFA as a prudential regulator of the GSEs should supervise the GSEs’ risk management processes and financial health. FHFA should use its regulatory authority whenever possible (as opposed to its authority as conservator) to minimize regulatory arbitrage by having a coordinated and consistent oversight approach.
5. Promote a clear, consistent, and coordinated housing finance system.
   
   Finally, actions taken by FHFA should increase transparency and consistency, and should reduce, not merely shift, mortgage credit risk in the housing finance system. To accomplish this, the FHFA should work closely with other federal regulators to implement a transparent and coordinated housing policy that facilitates access to credit, promotes prudent mortgage underwriting, and creates a level playing field. Robust coordination between the FHFA, U.S. Department of Housing and Urban Development (HUD), and Consumer Financial Protection Bureau (CFPB) will ensure that borrowers are best served by housing market participants and that the federal government, and therefore American taxpayers, are adequately protected from losses related to mortgage credit risk. Federal policy should clarify which borrowers should be served by the GSE backed market and which are better served by the Federal Housing Administration (FHA). This is consistent with Treasury’s “Housing Reform Plan, which stated that “FHFA and HUD should develop and implement a specific understanding consistent with these defined roles for the GSEs and the FHA so as to avoid duplication of Government support.” Importantly, the GSEs have demonstrated that first-time homebuyers and borrowers with low down payments can effectively be supported by the conventional market. The GSEs and MIs have a long history of facilitating access to affordable and prudently unwritten low down payment mortgages, and conventional loans with private MI have been the preferred option for low down payment borrowers for every year since 2016. These home-ready borrowers should have mortgage options and not be categorically restricted to government-insured programs such as the FHA.
   
   A primary aspect of promoting a coordinated housing finance system is that the Administration, and FHFA specifically, should advance policies that promote borrowers being served by the conventional market, by private capital, where possible. As stated in our comment letter on the re-proposed Enterprise Regulatory Capital Framework, USMI strongly encourages FHFA to promote private capital standing in front of the GSEs, including through loan-level first-loss protection through entities that can actively manage mortgage credit risk, such as private MIs. Further, the Administration could encourage or require these private entities to disperse credit risk, similar to how private MIs currently operate and use the reinsurance and capital markets to further distribute mortgage credit risk to diverse global sources of capital.

A well-functioning housing finance system should provide consistent, affordable credit to borrowers across the nation and through all parts of the credit cycle without putting taxpayers at undue risk. Fixing our nation’s housing finance system and putting it on a sustainable path is the last piece of unfinished business following the 2008 financial crisis. We urge the FHFA and Administration to pursue the reforms enumerated above to ensure greater taxpayer protection and a more level playing field that enables a more transparent housing finance system and promotes sustainable access and affordability.

Sincerely,

Lindsey D. Johnson
President
U.S. Mortgage Insurers

View the letter as a PDF.