WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, today announced the industry has transferred over $55 billion in risk on nearly $2.8 trillion of insurance-in-force (IIF) from 2015 through 2021. The industry’s use of MI credit risk transfer (MI-CRT) reduced volatility in the business and brought more sources of private capital to the housing finance market. MI-CRT, combined with enhanced capital standards required by the government-sponsored enterprises (GSEs) and the Federal Housing Finance Agency (FHFA), has transformed the industry from a cyclical business to a more stable, long-term manager of mortgage credit risk.
“While some housing market participants either paused or reduced their CRT activities during the past two challenging years, the private MI industry continued to execute CRT transactions,” said USMI President Lindsey Johnson. “This underscores the confidence investors and reinsurers have in the private MI industry in terms of the critical role we play in helping millions of people access affordable mortgage credit while taking a disciplined approach to writing new business.”
From 2015 through 2021, the private MI industry issued 49 insurance-linked notes (ILNs), transferring $20 billion of risk exposure on more than $2 trillion of notional mortgages to capital market investors, and completed 25 quota share (QSR) and excess of loss (XOL) reinsurance transactions, ceding $35 billion of additional risk to the global reinsurance markets. That is $55 billion of risk transferred off private mortgage insurers’ balance sheets, meaning additional capacity to support new borrowers. In 2021, the industry insured $1.4 trillion of mortgages, including $1.2 trillion of mortgages backed by the GSEs.
Johnson recently discussed MI-CRT with National MI President and CEO Adam Pollitzer.
“MI-CRT is central to how the private MI industry manages credit risk. The tools we use—insurance-linked notes offerings, excess of loss reinsurance treaties, and quota share reinsurance agreements—each serve to absorb risk and loss in stress scenarios,” said Pollitzer. “CRT enhances our counterparties’ strength, bolsters and diversifies our funding profile beyond entity-based equity capital, and allows us to write more business and support more borrowers with greater efficiency. Every dollar of risk transferred through CRT opens another dollar of mortgage volume that we can support for new borrowers.”
The private MI industry complies with a set of operational and capital standards known as the Private Mortgage Insurance Eligibility Requirements (PMIERs), which were developed and are periodically updated by the GSEs and FHFA. At the end of 2021, the private MI industry held a collective $25.3 billion qualifying PMIERs funding, which represented a 170% sufficiency ratio—holding 70% more capital than the required regulatory threshold.
“The private MI industry is better positioned today than ever before to support borrowers in need and provide private capital solutions that insulate lenders, the GSEs, and ultimately taxpayers from risk and loss in the event of an economic downturn,” said Pollitzer. “Over the last 10 years, the terms of our coverage, the regulatory framework governing our actions, our funding requirements and capital position, our underwriting standards, and the way we approach evaluating risk, pricing policies, and managing our tail exposure have all fundamentally changed. And the performance of the private MI industry through the arc of the pandemic serves as a highlight.”
The MI industry has enabled more than 37 million families to access affordable, low down payment mortgages in its 65-year history. In 2021, the industry enabled nearly 2 million borrowers to access mortgage finance credit and supported $585 billion in mortgage originations. Nearly 60 percent of these insured loans went to first-time homebuyers, over 40 percent went to borrowers with incomes below $75,000, and the average loan amount for a mortgage with private MI was approximately $310,000.
USMI worked closely with federal policymakers, industry groups, and consumer organizations to support and advocate for low down payment homebuyers and homeowners throughout the year. The organization sent letters and released statements in support of bipartisan and bicameral legislative initiatives to make permanent the ability of homeowners to deduct MI premiums from federal income; submitted a comment letter on the Federal Housing Finance Agency’s (FHFA) Request for Input (RFI) on its Equitable Housing Finance Plans; and joined the Black Homeownership Collaborative in calling on the Biden Administration to focus on the critical need for housing production to address the significant deficit that continues to drive up home prices across the country.
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.