Category: News

Op-Ed: PMI must play crucial role in housing reform

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A version of this piece originally appeared on Scotsman Guide on September 25, 2018 and was written by USMI Chairman Bradley Shuster. 

Government-backed conventional mortgages totaled approximately $5.3 trillion as of summer 2018. As every follower of the mortgage finance system knows, the guarantors of this multi-trillion-dollar mortgage credit risk—Fannie Mae and Freddie Mac (the GSEs)—have remained under government control since being placed into conservatorship in 2008.

While GSE reform is contemplated by Congress each year, holistic legislative reform remains elusive. It’s time for our federal elected officials to put the GSEs on a more sustainable path so U.S. taxpayers don’t continue to bear the burden of undue mortgage credit risk.

There is encouraging news, however: some areas of reform have received consistent bipartisan support. The use of private capital to transfer credit risk away from taxpayers is widely supported by housing experts, members of Congress from both sides of the aisle, and the White House. There are a number of ways to do this, and over the past several years, the GSEs have been exploring new programs including transferring second-loss risk (so-called “mezzanine risk”) through credit risk transfer (CRT) transactions.

For over 60 years, private mortgage insurance (MI) has served as a significant means for transferring mortgage credit risk away from the federal government and taxpayers. This is for good reason: private MI is one of the only forms of loan-level credit enhancement positioned in a first-loss position to lenders and the GSEs—transferring the risk before it ever reaches the GSEs’ balance sheets. Private MI has helped nearly 30 million families become homeowners, including many first-time homebuyers and low- to moderate-income borrowers, by allowing them to receive prudently underwritten mortgages with as little as three percent down. In fact, private MI helped more than one million borrowers purchase or refinance a mortgage in 2017 alone and 56 percent of purchase loans went to first-time homebuyers. Further, private MI not only helps put families in homes but also keeps them there by being responsive to troubled borrowers and working with homeowners to avoid default with prudent modifications.

Since the financial crisis, the MI industry has taken important steps to strengthen and enhance its risk protection capabilities, particularly with the new Private Mortgage Insurer Eligibility Requirements (PMIERs) enacted in 2015, which nearly doubled the industry’s pre-crisis capital requirements. The industry has also improved its claims processes through updated Master Policy Agreements, which provide lenders with greater clarity about when and how the industry pays claims. Today, more than $930 billion in GSE mortgages have private MI coverage and the industry has covered more than $50 billion in claims since the GSEs entered conservatorship.

When a mortgage insurer pays a claim, it’s a claim that neither the lender nor taxpayers (for the GSEs) have to shoulder. It’s not just claims though; the MI industry is a leader in mortgage underwriting. As a loan level product, private MI brings to the table a second set of eyes in the underwriting process, which helps to approve low down payment borrowers for home financing while ensuring these borrowers meet today’s prudent lending requirements. This is where private MI has unique advantages over other forms of credit enhancement, and why it’s essential private MI remains a fundamental component of the way the GSEs transfer credit risk in any reformed system.

The GSEs and the Federal Housing Finance Agency (FHFA), as conservator and regulator, are experimenting with other CRT mechanisms as Congress considers reform. These different CRT mechanisms are similar to how mortgage insurers manage and distribute their own credit risk exposures. Importantly, unlike some other forms of opportunistic capital, private MI is consistently available across market cycles, ensuring borrowers will continue to have access to affordable mortgage credit even during bad economies and that taxpayers will consistently have meaningful protection against mortgage credit risk. Importantly, mortgage insurers do not just buy and hold mortgage credit risk. Over the years, the MI industry has demonstrated increasing sophistication in evaluating and managing this long-tail mortgage credit risk. For decades, the MI industry has actively participated in reinsurance transactions in the normal course of business to disperse risk to enhance its capital allocation and manage its own risk exposure.

More recently, the industry has also participated in various capital markets transactions. In April 2017, National MI (NASDAQ: NMIH) successfully completed its first securitization of MI risk with the issuance of more than $200 million of insurance-linked notes and this July announced the pricing of $264.5 million of 10-year mortgage linked notes. These securitizations not only help disperse mortgage credit risk, but also free up capital that can be used to help more borrowers purchase homes. Other MI companies are participating in similar securitizations and these transactions have established the MI industry as a nimble and innovative player in the housing and mortgage sector. Since 2013, U.S. Mortgage Insurers (USMI) members have transferred to the global capital and reinsurance markets $34 billion of risk, covering $160 billion of primary risk written.

What happens during a stressed market cycle is important to consider. The reality is much of what the GSEs have been experimenting with are forms of CRT that are not tied to housing and therefore will be unavailable for this type of mortgage credit risk when the housing sector is under stress. That’s one of the reasons why private MI remains an essential form of risk transfer for the GSEs. If the GSEs were to rely on their own balance sheets or an MI alternative that suddenly became unavailable, the government and taxpayers would be unduly exposed to risk.

And the MI industry is poised and capable of doing even more in any reformed housing system. While it is prudent for the GSEs to transfer second-loss risk into the capital markets, the MI industry remains active in underwriting and managing new credit risk—thereby reducing risk in the overall mortgage finance system—and remains committed to providing credit enhancement that protects taxpayers while ensuring borrowers have access to low down payment lending.
The MI industry and its products are among the most sophisticated and experienced in the housing finance system when it comes to risk management. The MI industry has proven to be unparalleled in its innovation and leadership in promoting homeownership for the last six decades and has much more to offer American homeowners. Lawmakers and policymakers have important work ahead of them to reform the GSEs, and the MI industry stands at the ready to ensure its invaluable services are part of any new system.

Bradley Shuster is the Chairman of the Board and CEO of National MI, and serves as current Chairman of U.S. Mortgage Insurers (USMI).

Statement: FHFA’s Updates to Private Mortgage Insurers’ Eligibility Requirements (PMIERs)

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WASHINGTON — U.S. Mortgage Insurers (USMI) President Lindsey Johnson issued the following statement on the Federal Housing Finance Agency’s (FHFA) newly released changes to its Private Mortgage Insurer Eligibility Requirements (PMIERS). PMIERS are a set of requirements implemented in 2015 for private mortgage insurance companies to be approved to insure loans acquired by Fannie Mae and Freddie Mac:

“The existing robust capital and operational standards brought by PMIERS have provided exactly what Fannie Mae and Freddie Mac (the GSEs) and other market participants sought in the role of private mortgage insurers (MI)—greater confidence as permanent, dedicated sources of first loss credit risk protection and as trusted ‘second sets of eyes’ to protect long-term value in the housing finance system. PMIERs, which are the set of requirements for mortgage insurers to be approved to insure loans acquired by the GSEs, were developed after a public notice and comment period that the FHFA initiated in 2014. Since being implemented in 2015, PMIERs nearly doubled the amount of capital each mortgage insurer is required to hold, resulting in a minimum MI level of capital assets over 7 percent of risk insured. USMI member companies have maintained levels significantly over the PMIERs requirements, with each company holding millions in excess—and USMI members collectively holding nearly $2.6 billion in excess of these requirements.

“USMI members appreciate the opportunity to provide feedback to the GSEs and FHFA on proposed changes and the incremental improvements made in PMIERs 2.0. We look forward to continuing to work with the GSEs and FHFA in the future to build upon the strong credit enhancement that the mortgage insurance industry provides to protect lenders, the GSEs, and taxpayers. As publicly traded companies, private MIs have a keen interest in ensuring that the process for the development of any changes to PMIERs is transparent and that proposed changes are based on an econometric rationale that can be modeled and explained to investors, industry stakeholders and, importantly, to borrowers. Further, as the only GSE counterparties that have gone through a public notice and comment period for capital and operational requirements when PMIERs were initially developed and implemented, and that are currently transparent to all market participants and stakeholders, there should be greater consistency in the development and application of these same or equivalent capital standards for all sources of credit enhancement who take the same credit risk. This consistency will better ensure GSE counterparties are well capitalized, highly-regulated, are able to protect taxpayers through different market cycles, and will promote a more level playing field.

“PMIERs reflect that today’s MIs are highly capitalized, reliable counterparties. The MI industry provided significant protection against mortgage-related credit risk through the last financial crisis—paying more than $50 billion in claims through the downturn—before PMIERs were implemented. Today, the industry is on much better footing to further protect taxpayers during the next downturn.

“For more than 60 years, private MI has helped more than 30 million families qualify for a mortgage by bridging the gap between the down payment and home financing. In 2017 alone, MI helped more than one million borrowers safely purchase or refinance a mortgage. Today, the MI industry is stronger than it has ever been, and the requirements under PMIERs makes the industry even better poised to protect the GSEs and American taxpayers from mortgage credit risk in the future.”

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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.

Newsletter: August 2018

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It’s been an action-packed summer for housing finance. The Washington Post reported on down payments being the chief hurdle for homebuyers across the country, citing USMI’s recent report on private mortgage insurance’s role in homeownership. There have also been substantive conversations about Fannie Mae and Freddie Mac’s (the GSEs) footprint and future. American Enterprise Institute (AEI) held a conference on the GSEs’ market activities, while Politico published an in-depth article on their market expansion. U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell also testified before Congress and both fielded questions on GSE-related matters. These GSE-related developments come as Fannie Mae CEO Timothy Mayopoulos announced his retirement by year’s end and, as National Mortgage News reported, when stakeholders and influencers are keenly focused on the Administration’s pick for the next Federal Housing Finance Agency (FHFA) Director. In other news, the U.S. Senate held a nomination hearing for Michael Bright to become President of Ginnie Mae, and Federal Housing Administration (FHA) Commissioner Brian Montgomery discussed his priorities.

  • The Washington Post reports on the benefits of private mortgage insurance. Last week, The Washington Post featured an article focused on the difficulty for many Americans to save a 20 percent down payment to buy a home, and how private mortgage insurance (PMI) can help. In the piece, the author writes about the long wait time it can take Virginia, Maryland, and DC borrowers to save 20 percent down for a home, and cites USMI’s recently released state report. The article also highlights that in 2017, 56% of purchase loans with PMI went to first-time homebuyers. 
  • AEI hosts discussion on GSE mission creep. AEI hosted an event that discussed the GSEs’ footprint in the housing finance system and their history of mission creep into the primary market. Panelists at the event, which included an array of respected housing finance experts, cited examples of direct-to-consumer product marketing, lines of credit to non-bank servicers, dramatic expansions in the multifamily market, and opaque pilots that directly compete with traditional forms of loan-level credit enhancement. Panelists unanimously agreed that housing finance reform is necessary and it’s inappropriate for the GSEs to expand their footprint and market power while in conservatorship. Key observations include:
    • Michael Fratantoni (Mortgage Bankers Association): “There is constant concern that [the GSEs] are stretching beyond their defined role in the marketplace… In this conventional conforming there should be a bright line between what primary market entities do and what secondary market entities – like Fannie and Freddie – do.”
    • Michael Stegman (Milken Institute): “The lack of transparency in pricing, capital, and cross-subsidy have certainly complicated the conversation around housing finance reform and I would agree that we need a whole lot more transparency.”
    • Ed DeMarco (Housing Policy Council) referenced a February 2010 letter to Congress in which he stated: “After considering the statutory requirement and goals of conservatorship, I have concluded that permitting the Enterprises to engage in new products is inconsistent with the goals of conservatorship… In short, the Enterprises will be limited to continuing their existing core business activities and taking actions necessary to advance the goals of conservatorship.”
  • Politico reports on the GSEs’ market expansion. Earlier this week Politico featured an article that includes in-depth analysis of the Enterprises “quietly expanding their activities to fortify themselves against any efforts to rein them in,” and features observations from key housing experts. The article notes that recent activities and pilots have drawn scrutiny from members of Congress, with Rep. French Hill (R-AR) expressing concern about the GSEs’ mission creep to Treasury Secretary Steven Mnuchin, stating “The GSEs’ attempt to obtain expanded powers [is intended] to put them in an even more powerful position as reform proposals are considered by Congress.”
  • S. Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell call for GSE reform. Treasury Secretary Steven Mnuchin testified before the House Financial Services Committee. During the hearing, Mnuchin stated the country needs GSE reform, saying it is “something that I am determined, in the next Congress, should be a major focus of ours — hopefully on a bipartisan basis. But we can’t just leave these things sitting the way they are as they have been.” Mnuchin also responded to a question from Congressman French Hill (R-AR) about the GSEs focusing on their core mission of serving secondary mortgage market homeowners and not competing with the private sector, saying: “…I think they should stay to their core business.” Fed Chair Jerome Powell testified separately before the House Financial Services Committee and Senate Banking Committee. He stated that housing finance reform remains the most significant unfinished business from the financial crisis. Specifically, Powell said, “It is really important for the longer run that we get the housing finance system off the federal government’s balance sheet and, using market forces and some of the things that are already in place, carry forward with some kind of reform.” Powell added it “continues to be a good time to move forward on [housing finance reform] … It is unsustainable to effectively have the U.S. housing finance system on the government’s books for the long run and it is not healthy.” Powell has previously called for moving to a housing finance system that relies even more on private capital to stand between housing credit risk and taxpayers. These comments by Sec. Mnuchin and Chairman Powell come just as longtime Fannie Mae executive Timothy Mayopoulos — who has served as the GSE’s CEO since April 2012 — announced his retirement effective end of 2018.
  • Senate holds nomination hearing on Michael Bright to be Ginnie Mae President. The Senate Committee on Banking, Housing, and Urban Affairs held a nomination hearing on Michael Bright, who was nominated by President Donald Trump in May 2018 to become the next President of Ginnie Mae. During the hearing, Bright was asked about a 2016 paper he co-wrote on housing finance reform, which proposed placing the GSEs in receivership and establishing Ginnie Mae as a standalone entity separate from the Department of Housing and Urban Development (HUD). Bright said in the hearing, however, that he does not intend to advance those proposals as President of Ginnie Mae. It was also noted in the hearing that Bright helped write 2013 legislation to reform the GSEs as a former aide to Sen. Bob Corker (R-TN). During discussion about his past work, Bright said “aspects of conservatorship have been more durable” than originally thought at the time the 2013 bill was drafted.
  • FHA Commissioner Brian Montgomery prioritizes technology upgrades as part of FHA reform. FHA Commissioner Brian Montgomery said that he wants to make sure FHA is around for “generations to come” and described the agency as being in “fix-it mode.” Commissioner Montgomery is specifically focused on prioritizing technology upgrades to replace mainframes currently in use at HUD and the FHA. According to April 2018 testimony from Dana Wade, General Deputy Assistant Secretary of FHA, “there were 73 outages of FHA’s origination systems during 2017, with durations lasting as long as five days.” There is universal agreement among housing finance stakeholders that the FHA’s 40+-year-old mainframe system is in dire need of updating and that the agency’s continued use and reliance on an obsolete programing language creates significant taxpayer risk.
  • National Mortgage News lists potential new FHFA Directors. Yesterday the mortgage news outlet released an article that puts forth seven possible contenders to run the FHFA after current Director Mel Watt’s term expires in January 2019. The list of potential successors includes federal policymakers and respected housing finance experts including Adolfo Marzol, Rep. Jeb Hensarling, Mark Calabria, Michael Bright, Craig Phillips, Ed DeMarco, and Phillip Swagel. As the article notes, the Administration’s selection of the next FHFA Director will have significant implications for the GSEs, including what reforms might be pursued and achieved during the Trump Administration, as well as the broader housing finance market. The term of current FHFA Director Mel Watt ends January 6, 2019.

Article: More evidence of why trying to save 20 percent on a home down payment isn’t realistic

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By Michael Lerner, Washington Post

“One of the biggest misconceptions associated with buying a home is that you need a down payment of 20 percent of the home price. The median down payment for buyers under age 37, a group that typically includes a majority of first-time buyers, was just 7 percent last year, according to the National Association of Realtors…”

Read More on Washington Post

Statement: Fannie Mae’s New Enterprise-Paid Mortgage Insurance Product

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WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), today issued the following statement on the Fannie Mae’s new Enterprise-Paid Mortgage Insurance (EPMI) product:

“USMI appreciates the level of detail provided to the marketplace thus far and the additional details promised in the near future about Fannie Mae’s new Enterprise-Paid Mortgage Insurance (EPMI) product. However, Fannie Mae’s new EPMI pilot program is a troubling development and heightens concerns about the GSEs’ expanding roles in the housing finance system. Even after Congress raised questions about the Federal Housing Finance Agency (FHFA) and GSEs’ lack of transparency in developing, approving, and rolling out new products and activities—and their expanding operations in the mortgage market—Fannie Mae has moved ahead with a new program that bypasses the high capital and operational standards developed and enforced by the GSEs for private mortgage insurers, despite the fact that these entities are taking the exact same risk. Like Freddie Mac’s Integrated Mortgage Insurance (IMAGIN) program, this new Fannie Mae program represents a significant blurring of the bright line separation between primary market and secondary market activities and greater vertical integration of private sector activities into the GSEs.  Further, this promotes an unlevel playing field in the private market by allowing for different terms and standards for EPMI versus other sources of private capital. From a taxpayer perspective, we believe it is much more appropriate and prudent for dedicated forms of private capital that are available through economic cycles, such as private mortgage insurance, to continue to perform the critical functions of underwriting and assuming first loss credit risk at the loan level. This form of credit risk protection can and should be done even as the GSEs continue to disburse and diversify credit risk through channels such as reinsurance and the capital markets, just as private mortgage insurers do today. The MI industry continues to be a strong counterparty to the GSEs and our focus continues to be on the value MI brings to our customers, consumers, and to the federal government and American taxpayers.”

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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.

Press Release: U.S. Mortgage Insurers Names National MI’s Bradley Shuster As Chairman

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WASHINGTON—U.S. Mortgage Insurers (USMI) today announced that Bradley Shuster will serve as the association’s new Chairman of the Board. Shuster is the Chairman and CEO of National Mortgage Insurance Corporation (National MI) and its parent, NMI Holdings, Inc. (Nasdaq: NMIH). He succeeds Patrick Sinks, CEO of Mortgage Guaranty Insurance Corporation (MGIC). Shuster’s appointment comes at a significant time in the housing finance system, which remains at the center of national policy debates.

“The housing finance system continues to strengthen and make enhancements to safety and soundness that make it more resilient, and the private mortgage insurance industry has played a significant role in these improvements. As policymakers consider how to put the housing finance system on a sustainable, long-term path for the future, I am excited to serve as USMI’s Chairman to continue to champion the important role private mortgage insurance plays – and will continue to play – in facilitating responsible low down payment lending while protecting the government and taxpayers against mortgage credit risk,” said Shuster.

Shuster previously served as USMI’s Vice Chair. He has served as National MI’s Chairman and CEO since April 2012, and brings more than 30 years of experience in the housing finance industry to USMI’s chairmanship. He previously served in the leadership team of The PMI Group, Inc. for over a decade and was a partner at Deloitte LLP where he served as the Partner-In-Charge of the firm’s Northern California Insurance Practice and Mortgage Banking Practice. Shuster also held several consulting positions assisting private investors in the insurance industry.

“We are excited to welcome Brad as USMI’s new Chairman. His leadership and tenure in the mortgage insurance industry will be invaluable as we continue our important work of promoting homeownership and providing Americans with access to affordable and safe mortgage financing,” said Lindsey Johnson, President of USMI. “I want to also offer my profound thanks to Pat Sinks for his commitment to USMI and tireless work as Chairman for the last two years. Pat’s efforts have been vital to USMI and the mortgage insurance industry, and we are grateful that he will continue to serve on our board of directors.”

Richard Thornberry, who is the CEO of Radian Group Inc., will become Vice Chair for USMI.

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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.

Newsletter: June 2018

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It’s a good day to be a Washington Capitals fan! #ALLCAPS #ROCKTHERED! As summer heats up, so do several issues and developments in the housing industry. This week USMI released a new report on how private mortgage insurance (MI) has helped nearly 30 million homeowners nationwide for more than 60 years.  In addition, the Federal Housing Finance Agency (FHFA) received a number of comment letters on its Notice of Regulatory Review process, including from USMI and the Mortgage Bankers Association (MBA), among others. Housing has also been a big topic in Congress lately as the U.S. Senate voted to confirm Brian Montgomery as the new Federal Housing Administration (FHA) Commissioner, and the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Fannie Mae and Freddie Mac’s (the GSEs) 10 years of conservatorship. And last but certainly not least, June is National Homeownership Month and we recognize the National Fair Housing Alliance, which will host its annual conference next week that celebrates the 50th Anniversary of the Fair Housing Act.

  • USMI releases new report on private MI’s role in homeownership nationwide. USMI released a national report on the role of private MI in all 50 states and the District of Columbia. The report found that nearly 30 million homeowners have been served by MI for more than 60 years, and breaks down low down payment mortgage lending with MI in all 50 states. The report also underscores the historic importance of MI, how MI has helped promote homebuying in the U.S. especially with first-time buyers, and the protections that MI provides to American taxpayers and the federal government. The complete report on MI in the U.S. is available here. All 50 states fact sheets, plus data for the District of Columbia, are available here.
  • Trades, including USMI and MBA, submit comment letters on FHFA Notice of Regulatory Review. This week, USMI submitted a comment letter to the FHFA on its Notice of Regulatory Review as part of the agency’s five-year Regulatory Review Plan, which identifies agency rules that should be changed or modified. In its letter, USMI suggests that FHFA should reassess its “Prior Approval for Enterprise Products” interim final rule for the GSEs, because though the regulation establishes a process for the GSEs to obtain prior approval from the FHFA for new products—and provide prior notice to the FHFA for new activities—the regulation is “unused [since its implementation in 2009] and apparently not fit for purpose.” USMI argues that “new activities and products have the potential to significantly impact many stakeholders in the housing finance ecosystem—GSEs, lenders, private mortgage insurers, borrowers, and the American taxpayer” and therefore “stakeholders should not have to rely on mechanisms that sidestep the Administrative Procedure Act such as ‘requests for input’ to offer feedback on new activities and programs proposed by the GSEs.” Further, USMI notes that since becoming conservator of the GSEs in 2008, FHFA has not addressed the interaction between its regulatory and conservatorship authorities. For these reasons, USMI urges FHFA to “withdraw the Regulation and resubmit a new proposed rule for a formal notice and comment period with additional clarity on the FHFA’s role and authority as conservator and regulator of the GSEs, as well as a workable approach for assessing new activities and products.”As reported by Inside Mortgage Finance (subscription), MBA also submitted a comment letter urging FHFA to require public disclosure on “any notice” of new business activities being planned by the GSEs. Among other things, MBA asks that FHFA specify the factors and metrics it will consider when determining whether a new activity constitutes as a new product or new activity, and specifically calls on FHFA to modify the manner in which it addresses new activities characterized as “pilots.”
  • Brian Montgomery confirmed as new FHA Commissioner. Brian Montgomery, a respected housing expert and seasoned mortgage finance professional, was confirmed in a widely bipartisan vote to serve as President Trump’s FHA Commissioner. Commissioner Montgomery, who previously served as FHA Commissioner in the George W. Bush administration, will be responsible for overseeing the more than $1 trillion of insurance in force at the FHA as well as addressing some of the challenges facing the FHA going forward.Upon Commissioner Montgomery’s confirmation, USMI President Lindsey Johnson released a statement praising the Senate confirmation of the new FHA Commissioner: “USMI applauds the Senate for its bipartisan vote to confirm Brian Montgomery to serve as FHA Commissioner… We look forward to working closely and collaboratively with Commissioner Montgomery to create a more coordinated, consistent, and transparent housing system – a system that can expand private capital’s role in shouldering more risk in front of taxpayers in the housing market.”
  • Senate holds hearing on “Ten Years of Conservatorship” of the GSEs. The Senate Committee on Banking, Housing, and Urban Affairs recently held a hearing entitled “Ten Years of Conservatorship: The Status of the Housing Finance System,” in which FHFA Director Mel Watt testified on the GSEs’ activities over the last ten years under federal control. During his testimony, Director Watt said that FHFA has “worked with the Enterprises to develop a Conservator Capital Framework [CCF] that establishes aligned capital guidelines for both Enterprises across different mortgage loan and asset categories” and that FHFA uses the CCF to assess GSE guaranty fees, activities, and operations. Director Watt suggested that, as regulator, he believes it is important for FHFA to “articulate a view on prudential capital requirements for the Enterprises.” Director Watt suggested that FHFA will release for public comment a proposed rule for post-conservatorship risk-based capital and minimum leverage capital requirements.During the question and answer portion of the hearing, Senator Bob Corker (R-TN) focused on the CCF and asked if Director Watt agreed that “capital for these institutions should be fairly close at least to some of the larger banking institutions.” Senator Corker also spoke to the GSEs’ footprint, suggesting that “there are some areas where it [the footprint] has expanded… We have a situation now where Freddie Mac is now lending, they have become a lender their servicers.” Senator Corker noted “some of the pilot programs over the last five years have actually expanded the role of the two GSEs,” specifically pointing to Fannie Mae’s recent increase in debt-to-income ratios and its “financing Airbnb” as examples of expansions of the GSEs in the marketplace. Senator Corker said, “there has actually been an expansion of mission, and so while we have gotten the portfolios down it appears that instead of trying to decrease the footprint over time, over the last five years we are beginning to, especially in the last couple years, expand the mission.”Senator Pat Toomey (R-PA) asked Director Watt about the recent release of the IMAGIN product into the market place, and specifically “why there was not maybe even a traditional rulemaking process or a period of public comment to consider this.” Senator Toomey also questioned the recent financing of mortgage service companies, noting that “this looks like new kinds of activities, new practices, where we have not seen an explanation, an opportunity to comment and to get public input on.” Director Watt responded that “if I took public comment on every pilot that we did, we would never do any.” Senator Toomey ended his line of questions by asking Director Watt to respond in writing with an explanation for the rationale behind the program.
  • National Fair Housing Alliance celebrates 50th Anniversary of Fair Housing Act. The National Fair Housing Alliance will hold its annual conference next week celebrating the 50th Anniversary of the Fair Housing Act. The conference, titled “The Fair Housing Act at 50: Making Every Neighborhood a Place of Opportunity” will be held June 9 through 12 and aims to bring together thought leaders and experts on civil and human rights, housing, lending, insurance, education, transportation, health, environmental justice, and community development to examine achievements made under the Fair Housing Act. The conference will also observe the current barriers to fair housing and inclusion, and what is on the horizon in the coming years. More information about the events commemorating the 50th Anniversary of the Fair Housing Act can be found here.

Report: Texas Ranks First in U.S. for Number of Homebuyers Who Secured Home Financing Thanks to Private Mortgage Insurance

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Findings Demonstrate Important Contributions by Private Mortgage Insurance to Texas Homeownership

WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing five of the six top private mortgage insurance (MI) companies in the United States, today released a report on the role of private MI in Texas. The report found that 79,030 homeowners in Texas secured a home loan with private MI in 2017, which ranks first in the nation in terms of the number of homeowners helped with MI, and breaks down low down payment mortgage lending in Texas.

“Private mortgage insurance has helped millions of first-time and middle-income homebuyers across the United States for more than 60 years and has had a tremendous impact in supporting homeownership in Texas. This report confirms what we have long known: MI is a critical piece of the U.S. housing finance system, helping Texans realize the dream of homeownership while providing important protections to Texas taxpayers,” said Lindsey Johnson, President of USMI. “For decades, low down payment borrowers in Texas have relied on MI to help them affordably and responsibly buy a home, and MI will continue to serve countless more prospective Texas homebuyers in the years to come.”

For many Texans, the biggest hurdle in buying a home is the 20 percent down payment they think is required for mortgage approval. It would take the average Texas homebuyer 18 years to save the full 20 percent down payment for a home. MI helps bridge the down payment gap so borrowers can obtain the financing needed to purchase a home, and in doing so allows Texas homeowners to build the kind of long-term wealth that comes with having equity in a home.

According to the report’s findings, 79,030 Texas borrowers became homeowners with the help of MI in 2017. Of these homeowners:

  • 55 percent were first-time buyers
  • 737 was the average FICO score
  • $233,650 was the average loan amount with MI

The report also highlights the number of minority homebuyers, including African-Americans, Hispanics, and Asian-Americans, who have successfully purchase a home in Texas. In 2017, 613,325 total loans were made in Texas, and of that total 200,279– or nearly 33 percent – were purchased or refinanced by minority borrowers.

“Since 1957, private mortgage insurance has played a critical role in helping first-time buyers and low- to moderate-income earners in Texas achieve affordable home financing. Through this successful homeownership, families can build home equity and are able to enhance their financial stability—both of which greatly benefit Texas communities,” Johnson added. “The MI industry has been a time-tested partner for millions of Americans nationwide as they become homeowners, and we will continue to offer this important and competitive product to countless more Texans in the years to come.”

The complete report can be found here and a data fact sheet on MI in Texas is available here.

Press Release: New Report Shows Importance of Private Mortgage Insurance in Helping Low Down Payment Borrowers Qualify for Mortgages in All 50 States

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TX, CA, FL, IL and MI are Top Five States in 2017

WASHINGTON, June 7, 2018 /PRNewswire-USNewswire/ — U.S. Mortgage Insurers (USMI), the association representing five of the top six private mortgage insurance (MI) companies in the United States, today released a report on the role of MI in all 50 states and the District of Columbia. The report finds that nearly 30 million homeowners have been served by MI for more than 60 years, and breaks down on a state-by-state basis low down payment mortgage lending. The report underscores the historic importance of MI, how MI has helped promote homebuying in the U.S., and the significant protection against undue mortgage credit risk that MI provides to American taxpayers and the federal government.

“Private mortgage insurance has helped millions of first-time and middle-income homebuyers across the United Statesfor more than 60 years. This report confirms what we have long known: MI is a critical piece of the U.S. housing finance system, helping Americans realize the dream of homeownership while providing important protections to taxpayers and the federal government,” said Lindsey Johnson, President of USMI. “For decades, low down payment borrowers have relied on MI to help them affordably and responsibly buy a home, and MI will continue to serve countless more prospective homebuyers in the years to come.”

The report looks at how MI helps bridge the down payment gap that affects many borrowers and analyzes at a state level who specifically benefits from MI. The report presents data that highlights:

  • The number of years it takes to save a 20 percent down payment in all 50 states plus the District of Columbia
  • The total number of homeowners helped by MI in 2017 broken down by state—and key lending characteristics including average home price and credit scores of borrowers with MI
  • The number of minority borrowers who have obtained or refinanced mortgages broken down by state

Since 1957, MI has helped more than 30 million families qualify for a mortgage by bridging the gap between the down payment and home financing. In 2017 alone, MI helped more than one million borrowers purchase or refinance a mortgage; of that total number of borrowers, 56 percent were first-time homebuyers and more than 40 percent had annual incomes below $75,000. The top five states in which MI was used by borrowers to purchase homes in 2017 are:

  1. Texas: 79,030 borrowers (55 percent first-time homebuyers)
  2. California: 72,938 borrowers (66 percent first-time homebuyers)
  3. Florida: 69,827 borrowers (58 percent first-time homebuyers)
  4. Illinois: 47,866 borrowers (63 percent first-time homebuyers)
  5. Michigan: 41,810 borrowers (57 percent first-time homebuyers)

 

The report also focuses on how MI reduces taxpayers’ exposure to mortgage credit risk and protects the federal government from that risk. MI serves as credit protection against mortgage credit risk in the event of a borrower defaulting on his or her mortgage, meaning every dollar that an MI company covers when a borrower defaults on his or her mortgage is a dollar that the GSEs and taxpayers do not have to pay. In fact, since the 2008 financial crisis the MI industry has paid over $50 billion in claims – losses the government and taxpayers did not have to bear.

“Coming out of the financial crisis, the MI industry is even stronger with more robust underwriting standards, stronger capital positions, and improved risk management. The MI industry follows a strict set of requirements to insure mortgages acquired by the GSEs, which are known as Private Mortgage Insurer Eligibility Requirements, and has implemented Master Policy Agreements to bring more efficiency and greater transparency to payment of claims,” added Johnson. “MI has played a critical role in protecting taxpayers and the federal government from undue mortgage credit risk for six decades, and will continue to provide this important function in the housing finance system moving forward.”

The complete report on MI in the U.S. is available here. All 50 states fact sheets, plus data for the District of Columbia, are available 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.

SOURCE U.S. Mortgage Insurers

This release originally appeared on PR Newswire. Click here to view the original release.

Statement: Confirmation Of Brian Montgomery As FHA Commissioner

Posted on by dcadmin

WASHINGTON — Lindsey Johnson, President and Executive Director of U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate’s confirmation of Brian Montgomery to serve as Federal Housing Administration (FHA) Commissioner:

“USMI applauds the Senate for its bipartisan vote to confirm Brian Montgomery to serve as FHA Commissioner. Commissioner Montgomery is a respected expert and seasoned mortgage finance professional, and his unique experience and past public service will be assets in tackling the challenges facing the FHA and housing finance system going forward.

“Commissioner Montgomery’s previously expressed views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government are encouraging, as well as his belief that the FHA ‘should never take the place of the private sector first-loss solution provided by private mortgage insurers.’ We are confident that Commissioner Montgomery will continue to be a champion for a robust housing finance system that strikes the appropriate balance between the conventional market backed by private capital and government-backed FHA loans. We also believe that Commissioner Montgomery’s experience and expertise overseeing and managing the FHA will be pivotal in returning the FHA to its more appropriate and intended role in the housing market – one that focuses on those borrowers who need the FHA’s 100% taxpayer-backed loans the most.

“The FHA has and will continue to play a critical role in the housing finance system, but its footprint has expanded dramatically since the 2008 financial crisis. Commissioner Montgomery must focus on ensuring that the FHA is not overexposing taxpayers to undue mortgage credit risk and refocus the agency on its core mission. We look forward to working closely and collaboratively with Commissioner Montgomery to create a more coordinated, consistent, and transparent housing system – a system that can expand private capital’s role in shouldering more risk in front of taxpayers in the housing market. For more than 60 years private mortgage insurance has played a leading role in promoting affordable and sustainable homeownership, and we look forward to building upon our success in the future.”

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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.

Blog: 5 Questions to Ask When Shopping for a Mortgage

Posted on by Rhina Portillo

Buying a home is a major financial commitment. It’s exciting, but can also be confusing and overwhelming. Choosing the best mortgage that fits your needs is an important first step and first-time homebuyers in particular should research the many options and know the right questions to ask. Here are some questions to ask a lender that will help you make an informed mortgage decision:

* How much can I afford? A home affordability calculator can help you get an idea of what you may be able to afford and keep your monthly payments within your budget. In addition to recurring expenses like car payments, student loans, credit cards and disposable income, be sure to consider other monthly expenses related to the new home, like association fees, homeowners’ insurance, utilities and property taxes. Further, some types of mortgages have firm eligibility cutoffs related to the ratio between a buyer’s total debt amounts and their monthly income.

* How much do I need for a down payment? It’s a common misconception that a 20 percent down payment is required to buy a home. Let’s face it, a 20 percent down payment is a lot of money, and often the largest obstacle for homeownership, especially for first-time buyers. You can qualify for a conventional mortgage with as little as 3 percent down. Conventional mortgages originated with a low down payment, which is defined as less than 20 percent, require private mortgage insurance (MI) until approximately 20 percent equity is established through either monthly payments or home price appreciation. When mortgage insurance cancels, your monthly mortgage bill is reduced. It is important to know that not all forms of MI are created equal — private mortgage insurance is temporary and cancelable but the overwhelming majority of mortgages backed by the government’s Federal Housing Administration (FHA) contain insurance that cannot be canceled.

* What is the interest rate and is it fixed? Most first-time homebuyers go with a 30-year fixed-rate mortgage, which locks you into an interest rate with steady, predictable payments. Different lenders may offer different rates, so make sure to contact several lenders to ensure you’re getting the best option available in the market. A rate lock protects you from rising interest rates while the loan is being processed and lasts for a specific amount of time. In addition, make sure you know whether the rate is fixed or “adjustable.” Adjustable rate mortgages, commonly referred to as “ARMs,” result in periodic adjustments in the interest rate based on the lender’s cost of credit, and can be detrimental to homeowners in rising interest rate environments. Finally, ask if you are paying for “points” to reduce the interest rate. It’s an added upfront cost paid at closing, but it results in a lower rate for the life of the loan.

* Does my credit score matter? Yes, generally stronger credit scores (FICO 720 and above) come with better interest rates, but fortunately there are mortgage options for those with imperfect credit scores too. When you apply for a mortgage, your credit record is used to help determine your approval and mortgage terms, but it is not the only thing lenders consider. A lender will also look at your debt-to-income (DTI) ratio, cash reserves and other factors to help gauge your overall creditworthiness.

* Should I get pre-approved for a mortgage? Yes. Pre-approval means you receive a conditional commitment from a lender up to a specific loan amount. In a seller’s market with tight housing supply, being pre-approved demonstrates that you are a serious buyer with access to mortgage financing. To become pre-approved, you’ll provide your lender with information on your income, assets, debts and credit history to analyze your financial profile and determine your creditworthiness and amount you can borrow to purchase a home.

Make sure to know your options and choose the one that works for you. Check out lowdownpaymentfacts.org to learn more.

Statement: On IMAGIN

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on the recent news that Freddie Mac is piloting a new low down payment insurance program aimed at a small segment of the market called Integrated Mortgage Insurance (IMAGIN).

“Mortgage insurers (MI) have been supporting the U.S. housing market since 1957 by enabling homeownership opportunities for more people by providing insurance on mortgage loans where borrowers cannot afford a 20 percent down payment. To date, the MI industry has made homeownership possible for more than 25 million Americans.

“Mortgage insurers have taken steps to enhance both their claims paying ability—by increased capital and operational standards through the Private Mortgage Insurer Eligibility Requirements (PMIERs)—and their claims paying process through updated Master Policy Agreements.  These important steps lay the foundation for efforts to further “de-risk” the government sponsored enterprises (GSEs) through expanded use of private capital with MI, including through deeper cover mortgage insurance.

“Last week, Freddie Mac rolled out a pilot program (IMAGIN) that bypasses the highly regulated and highly capitalized MI industry, and began purchasing credit enhancement from an entity that is not held to the same regulatory standards as the MI industry.  We believe that the IMAGIN pilot violates the spirit of the Congressional charter for Freddie Mac and represents a significant blurring of the bright line separation between primary market and secondary market activities.  Because MI selection is currently handled by the lender as part of the primary market process, the IMAGIN program sets a precedent of allowing the GSEs to participate in primary market activities while also putting the taxpayer at greater risk by circumventing the high capital and regulatory standards that MIs are held to today.

“USMI is also concerned with the lack of transparency about the program and its development as well as the inherent conflict of interest in Freddie Mac’s role of imposing PMIERs standards on private MIs and then designing a program that relies on less regulated (and in turn less expensive) reinsurers to circumvent these standards.  We are also concerned about this program due to its lack of sustainability.  As monoline insurers, the MIs serve as capital that is more permanent and committed to taking only U.S. housing risk, where the IMAGIN panel of reinsurers have no such commitment.  This could leave the mortgage finance industry—and taxpayers—exposed and negatively affect home ownership.

“Rather than moving forward with this new pilot, we believe now is the time for the GSEs to explore options to use more private mortgage insurance.  The MI industry has demonstrated its ability to raise capital in the equity and debt markets, and also tap into other investors in the capital and reinsurance markets, to distribute risk.

“A deep MI pilot built around the core strengths of the MI industry, lender relationships, independent underwriting standards, and expertise in pricing long tailed credit risk, combined with Credit Risk Transfer via the capital and reinsurance markets by MI companies, can better protect the U.S. taxpayer while also providing prudent access to home ownership.”

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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.