Newsletter: June 2021

June marks the official start of summer and National Homeownership Month. This week, USMI released its 2021 National Homeownership Market Survey, which examined perceptions around homeownership, the mortgage process, and the challenges people face when trying to purchase a home. USMI also released its annual MI in Your State report in early June, which found borrowers were able to access home financing three times sooner in 2020 because of private mortgage insurance (MI). We dig further into these reports and more below.

USMI’s 2021 National Homeownership Market Survey
Black Homeownership Collaborative Launches in Ohio
USMI’s MI in Your State Report
Supreme Court Decision: Collins v. Yellen
Federal Agencies Extend Foreclosure Moratoria
MI Premium Tax Deductibility Proposal in Congress
Credit Risk Retention Rule
HUD Confirmations and Nominations
What We’re Listening To: “Radian On Air” Podcast
What We’re Watching: New American Funding Panel on Down Payment Assistance & Increasing Black Homeownership
What We’re Reading: Redwood Trust’s Employee Home Access Program

USMI’s 2021 National Homeownership Market Survey. On June 22, USMI released its 2021 National Homeownership Market Survey. This new research, fielded by ClearPath Strategies to 1,000 adults in the U.S., found that nearly 7 in 10 (69 percent) ranked lack of affordable housing and nearly 6 in 10 (57 percent) ranked low housing supply among the biggest homebuying challenges. The survey also specifically looked at these responses by race to better understand minorities’ perceptions and challenges around homeownership, housing affordability, and the mortgage process. It also revealed that many people continue to not understand the down payment requirements to purchase a home. Housing insecurity (66 percent) was also among the top concerns from respondents. Socioeconomic disparities – such as lower income, lack of intergenerational wealth, limited savings, and the percentage of monthly income dedicated to housing costs – were reported to make these challenges more acute, particularly among minorities.

Black Homeownership Collaborative. In collaboration with more than 100 organizations and individuals involved in the Black Homeownership Collaborative, USMI supports policies that promote equity and work to increase homeownership rates among Black Americans. On June 18, the Collaborative unveiled a solutions-based initiative to close the Black homeownership gap. The Collaborative’s seven-point plan includes homeownership counseling, targeted down payment assistance, housing production, credit and lending reforms, civil and consumer rights enforcement, advancing homeownership sustainability, and marketing and outreach. The goal is to create 3 million net new Black homeowners by 2030. Read more at 3by30.org.

USMI’s MI in Your State Report. On June 2, USMI released its annual MI in Your State report on the role of private MI in all 50 states and the District of Columbia. The report found that home loans backed by private MI increased 53 percent in 2020, with more than 2 million borrowers securing mortgage financing — a record year for the industry’s 65-year-history. The report also found that saving for a 20 percent down payment could take potential homebuyers 21 years — three times longer than it could take to save 5 percent down. Texas, California, Florida, Illinois, and Michigan were the top five states for mortgage financing with private MI. Fact sheets for all 50 states, plus the District of Columbia, are available here.

Supreme Court Decision: Collins v. Yellen. On June 23, the Supreme Court released its opinion for Collins v. Yellen, giving the U.S. President greater control over the Federal Housing Finance Agency (FHFA) and the future of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. The Court held that “[t]he Recovery Act’s restriction on the President’s power to remove the FHFA Director, 12 USC 4512(b)(2), is unconstitutional.” This provides President Biden with the authority and opportunity to nominate a new FHFA Director who will be in better alignment with the Biden Administration’s policy positions and priorities. The Court also held that GSE shareholders’ statutory claim must be dismissed since the FHFA’s actions regarding the Net Worth Sweep did not exceed its “powers or functions” as a conservator. This is undoubtedly a significant determination for the future of the leadership of FHFA, as well as the future of the GSEs. USMI continues to promote a housing finance system that is backed by private capital, and also promotes sensible reforms to the GSEs that include utility-like regulation of the GSEs.

Following the Court’s opinion, President Biden appointed Sandra Thompson, formerly the Deputy Director of the Division of Housing Mission and Goals, as the Acting Director of the FHFA. Prior to joining the FHFA in 2013, Acting Director Thompson spent more than 23 years at the Federal Deposit Insurance Corporation (FDIC), most recently as the Director of the Division of Risk Management Supervision. Her experience in financial supervision, consumer protection, and outreach will continue to benefit the FHFA and housing finance system. USMI looks forward to continued engagement with Acting Director Thompson and her FHFA colleagues to promote a robust conventional mortgage market and access to affordable mortgage credit.

Federal Agencies Extend Foreclosure Moratoria. On June 24, the White House announced a number of actions to protect renters and homeowners still experiencing financial hardships due to the COVID-19 pandemic. The Administration indicated that the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) are extending their foreclosure moratoria for one month, until July 31, 2021, and that homeowners with mortgages insured or guaranteed by the agencies may enter into COVID-related forbearance through September 30, 2021. FHFA followed with a statement that the GSEs are extending their foreclosure moratoria on single family foreclosures and real estate owned (REO) evictions through July 31, 2021. Homeowners with GSE-backed single family mortgages continue to be eligible for COVID-related forbearance.

MI Premium Tax Deductibility Proposal in Congress. On June 18, USMI joined with the Mortgage Bankers Association, National Association of Home Builders, and National Association of REALTORS® on letters to Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) of the House Committee on Ways and Means as well as Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) of the Senate Finance Committee. The groups expressed their support for making the mortgage insurance premium tax deduction permanent and eliminating the adjusted gross income (AGI) phaseout. Analysis from USMI demonstrates that, even after the doubling of the standard deduction in the 2017 tax law, nearly 2.4 million Americans continue to benefit from this important homeownership deduction. Importantly, nearly 60 percent of the taxpayers taking the deduction had AGIs of less than $75,000, demonstrating the importance of this deduction for low- and moderate-income families. The current phaseout represents a burdensome eligibility criterion for American families to claim the MI deduction and millions of homeowners could benefit from a permanent extension that eliminates the AGI phaseout. In April, USMI sent letters to the Joint Committee on Taxation, House Ways and Means Committee, and Senate Finance Committee outlining the legislative proposal.

Credit Risk Retention Rule. On June 11, USMI joined with several other housing and finance organizations on a comment letter to banking and housing regulators. The letter provided observations and recommendations with respect to the review of certain provisions of the 2014 Credit Risk Retention Rule that was jointly issued by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Securities and Exchange Commission, the FHFA, and HUD. Following careful analysis of the changes issued by the Consumer Financial Protection Bureau (CFPB) in its final Qualified Mortgage (QM) rule, the organizations expressed strong support for the continued alignment of the Qualified Residential Mortgage (QRM) and QM frameworks.

HUD Confirmations and Nominations. This month, Adrianne Todman was confirmed as HUD’s Deputy Secretary, Damon Smith was nominated to serve as the agency’s General Counsel and Julia Gordon was nominated to serve as the commissioner of the Federal Housing Administration (FHA). Smith previously served as the acting general counsel for HUD in 2014. Gordon had managed the single-family policy team at the FHFA from 2011 to 2012, and more recently, was a member of the FHFA and HUD agency review team for the Biden administration. USMI looks forward to working with HUD leadership and the FHA team on policies to best serve borrowers and responsibly facilitate access to homeownership.

What We’re Listening To: “Radian On Air” Podcast. Lindsey Johnson sat down with Radian President of Mortgage and current USMI Chairman Derek Brummer for the company’s latest podcast episode of “Radian On Air” titled, “National Homeownership Month: Expanding Minority Homeownership.” They discussed the importance of homeownership, barriers for first-time homebuyers, solutions to address low housing supply, and the role of private MI in promoting homeownership. Listen to the full episode here.

What We’re Watching: New American Funding Panel on Down Payment Assistance & Increasing Black Homeownership. On May 20, Lindsey Johnson joined Freddie Mac’s Sam Noel, and Stockton Williams, Executive Director of National Council of State Housing Agencies, in a virtual discussion hosted by New American Funding for its New American Dream initiative. Panelists discussed the pressing problem of bridging the down payment gap, how potential homebuyers can overcome that obstacle, and how to increase and sustain Black homeownership.

What We’re Reading: Redwood Trust’s Employee Home Access Program. In case you missed it, Redwood Trust announced its Employee Home Access Program (“the Redwood Benefit”), an MI benefits program for its workforce that supports employees seeking a path to homeownership. Through the program, Redwood is reimbursing all MI costs to help its employees put down roots in areas of their choosing. Citing limited access to affordable housing supply and challenges to access affordable housing, Redwood CEO, Chris Abate encouraged other corporate leaders to offer MI support for their employees: “If as a corporate leader you’re focused on environmental, social and governance objectives, I urge you to consider this benefit for your employees, too.”

Newsletter: April 2021

We are well into Spring and there continues to be numerous developments in housing finance. April is Financial Literacy Month, so U.S. Mortgage Insurers (USMI) has been hard at work highlighting the unique role private mortgage insurance (MI) plays in the mortgage finance system and the importance of financial literacy in the homebuying process. Washington policymakers have also been busy moving forward confirmations of key administration officials as well as holding congressional hearings and introducing legislation on housing. Below are some of the key developments USMI has been following over the last month.


USMI Member Spotlight: MGIC CEO Tim Mattke Talks Financial Literacy. Earlier this month, USMI talked with MGIC CEO Tim Mattke about the company’s efforts to ensure first-time homebuyers have access to the right information and resources to be “mortgage-ready.” Mattke noted that “understanding the process” is the most difficult step, after finding the right property, among those aged 22 to 40, according to the National Association of REALTORS®. “To help overcome this challenge, MGIC has provided homebuyer education for decades,” said Mattke, adding that “[l]ast year alone, over 100,000 people took our online tests in English or Spanish. More recently we launched a consumer site, Readynest,” which serves “to demystify the homebuying journey through relatable explanations and stories of others who have gone through the process.”

Mattke also called on federal policymakers to recognize the importance of low-down payment lending, especially for minority, lower-wealth, millennial, and first-time homebuyers. He noted the need to address the shortage in supply to increase affordable housing options and encouraged policymakers to explore ways to reduce regulatory red tape for new home construction and incentivize increased remodeling and rehabilitation of distressed properties.

2020 Numbers are in: Private MI Industry Record Year in Mortgage Originations. In late March, USMI announced a record year for the private MI industry, having helped over 2 million low down payment borrowers secure mortgage financing in 2020, a 53 percent increase from the previous year. Of these, nearly 900,000 were first-time homebuyers, up 25 percent from 2019. The industry supported $600 billion in mortgage originations — approximately 65 percent of this volume was for new purchases while 35 percent was for refinanced loans. This resulted in nearly $1.3 trillion in outstanding mortgages with active private MI coverage at year’s end, underscoring the industry’s critical role in enabling American families to obtain affordable and sustainable low down payment mortgages. “Despite the unprecedented challenges presented by the COVID-19 pandemic, conventional loans backed by private MI continued to make the dream of homeownership a reality for millions of low down payment borrowers,” said Lindsey Johnson, President of USMI.

Johnson also discussed the record volume with National MI CEO Claudia Merkle, who noted two key factors that contributed to the strong production: “First, there are more and more first-time homebuyers coming into the market. They have good credit but struggle to put 20 percent down on their first house. Private MI is a great fit for them. A second factor is attributed to low interest rates, which helped fuel the strong mortgage market momentum in 2020, for both the purchase segment and also for refinances.”

House Financial Services Committee Holds Hearing on Equitable and Affordable Housing Infrastructure. On April 14, the House Financial Services Committee (HFSC) held a hearing titled, “Build Back Better: Investing in Equitable and Affordable Housing Infrastructure.” Several bills proposed by Democratic committee members on issues ranging from lead abatement to broadband infrastructure were discussed. The main proposal, presented by Chairwoman Maxine Waters (D-CA), was the “Housing is Infrastructure Act of 2021.” Chairwoman Waters introduced similar legislation in the past and the 2021 iteration incorporates several of the other proposed bills considered by the committee, including the Down Payment Toward Equity Act of 2021 that would provide for $10 billion in targeted down payment assistance (DPA) for first-generation, first-time homebuyers of up to $20,000 and $25,000 for socially and economically disadvantaged individuals. A recent analysis from the Urban Institute estimates that between 2.51 million and 5.37 million renters households could be eligible for the proposed DPA.

There was also bipartisan agreement among committee members that the persisting shortage of affordable housing is a pressing crisis, and that the nation would benefit from more robust infrastructure investments. The parties, however, differed on what constituted as “infrastructure,” the implications of spending two trillion dollars on President Biden’s infrastructure proposal, and the effect of raising taxes to cover the costs.

HUD Maintains Pricing on FHA MI Premiums. Following the Senate’s bipartisan confirmation of Marcia Fudge as the Secretary of the U.S. Department of Housing and Urban Development (HUD) on March 10, USMI said in a statement that “[i]n HUD Secretary Marcia Fudge, America gains a housing advocate with proven leadership and an accomplished record while serving in Congress and supporting investments in housing programs and community development.” In one of her first actions as HUD Secretary, Fudge announced that the agency would maintain the current pricing of MI premiums on loans backed by the Federal Housing Administration (FHA) due to the agency’s high level of serious delinquency rates and the need to continue focusing on helping the tens of millions of families impacted by the COVID-19 pandemic. USMI President Lindsey Johnson said in a statement that “USMI is encouraged by HUD’s continued support of borrowers impacted by the pandemic, and its focus to ensure an equitable recovery for FHA borrowers. FHA is a critical resource for borrowers to attain homeownership through FHA-backed loans—especially for borrowers who may not have access through the conventional market.”

What We’re Watching: National MI CEO Claudia Merkle Explains Private MI. USMI released a short video of Merkle explaining the role of private MI in the housing market, and how it helps borrowers with down payments of less than 20 percent.

What We’re Listening To: USMI President Lindsey Johnson on Housing Wire’s News Podcast. In April, Johnson was a guest on Housing Wire’s News Podcast to discuss the unique role private mortgage insurers play in helping low down payment borrowers. Johnson also discussed how the industry was well-positioned in 2020 due in part to reforms it had implemented following the 2008 financial crisis. She also highlighted the record year that the private MI industry had through 2020 in helping more than 2 million borrowers purchase or refinance their home. In responding to questions about access and affordability in today’s housing market, Johnson spoke about the challenges of affordability, largely stemming from the lack of affordable housing supply, and spoke about specific proposals that industry and policymakers can pursue together to address these market challenges.

Newsletter: March 2021

It’s hard to believe there’s only 15 days until the first day of Spring 2021—a time that marks, for most years, the start of the busiest homebuying season. As the Biden Administration has filled more of its key positions, policymakers and industry leaders continue to focus on top priorities, including COVID-19 and its impact on many borrowers and the housing market, as well as ways to address racial and economic disparities in mortgage lending to ensure homeownership is an achievable goal for all Americans through thoughtful rulemakings and targeted polices. Below are some of the key developments U.S. Mortgage Insurers (USMI) has been following over the last month.

USMI Highlights Industry Leaders in Honor of Black History Month
USMI Member Spotlight: Radian
COVID Stimulus Bill Provides Housing Support
CFPB Delays QM Rule Implementation
Senate Banking Committee Holds Hearing on CFPB Director Nominee
Government Agencies Extend Forbearance & Foreclosure Protections
USMI Submits Comments to FHFA on Appraisal Policies
What We’re Listening To: Natixis Podcast 
What We’re Reading: Brookings on GSE Reform

  • USMI Highlights Industry Leaders in Honor of Black History Month. In February, USMI reached out to prominent leaders in the housing finance industry to discuss their work and perspectives on the goal of increasing Black homeownership in America. USMI spoke with Congressman Emanuel Cleaver (D-MO), chair of the House Committee on Financial Services’ Subcommittee on Housing, Community Development, and Insurance; Phyllis Caldwell, former Chief of the Homeownership Preservation Office at the U.S. Department of the Treasury; Lisa Rice, President and CEO of the National Fair Housing Alliance; and Alanna McCargo, Senior Advisor for Housing Finance at the U.S. Department of Housing and Development (HUD). Each of these leaders offered insights on the housing industry and how policymakers can work to help close the racial homeownership gap. USMI is grateful for their leadership and looks forward to continuing to work with them to expand Black homeownership and build wealth.
  • USMI Member Spotlight: Radian. In February, USMI began a new blog series to spotlight its members every couple of months and highlight how the industry is working to address critical issues within the housing finance system. Topics include expanding access to affordable and sustainable homeownership opportunities, ensuring taxpayer protection through increased capacity for risk sharing with mortgage insurance (MI), and providing recommendations for a coordinated federal housing policy. USMI kicked off the series with Derek Brummer, President of Radian’s Mortgage Business and Chairman of USMI’s Board. In the interview, Brummer emphasized Radian’s commitment to “the American dream of homeownership responsibly and sustainably through products and services that span the mortgage and real estate spectrum.” He noted the key role MI plays in bridging the down payment gap, and the benefits borrowers receive from having access to low down payment mortgages in the conventional market backed by private MI rather than being limited to mortgages backed by the Federal Housing Administration (FHA). “Optionality is a key component of affordability and accessibility,” he remarked. 

    He also discussed the future of housing policy, touching on President Biden’s executive order to address racial equity through housing, the nomination of Marcia Fudge to serve as the next HUD Secretary, and the opportunities for policymakers to increase Black homeownership and access to affordable mortgage credit. Brummer said, “Policymakers and the housing industry have the opportunity to correct inequities and sustainably increase minority homeownership.” Read the full interview here.
  • COVID Stimulus Bill Provides Housing Support. In the early hours of February 27, the House passed H.R. 1319, the American Rescue Plan Act of 2021, in a 219-212 vote. The $1.9 trillion aid package includes a significant amount of housing aid—$30 billion in emergency rental assistance, $10 billion for a Homeowner Assistance Fund, $100 million for housing counseling services, $20 million for fair housing initiatives, and several programs for the homeless. The bill is now in the Senate where it has already been subject to numerous modifications, including the elimination of the minimum wage increase due to the “Byrd Rule,” and more targeted direct payments to Americans. Earlier this year, USMI joined with several consumer and industry groups in sending letters to President Biden and congressional leadership urging them to include direct homeowner assistance in a COVID-19 relief bill to help families who are at risk of losing their homes due to the economic fallout from the pandemic. Click here to read more about USMI’s policy priorities to expand access and affordability in housing.
  • CFPB Delays QM Rule Implementation. On March 3, the Consumer Financial Protection Bureau (CFPB) released a notice of proposed rulemaking (NPRM) to delay the planned July 1 mandatory compliance date for the December 2020 General Qualified Mortgage (QM) Final Rule by 15 months to October 1, 2022. The CFPB is accepting comments until April 5. If finalized, the NPRM would allow for mortgages whose applications were received by lenders prior to October 1, 2022 to receive QM status using any of the following three standards: (1) the 2013 General QM definition that relied on a debt-to-income (DTI) cutoff; (2) the 2020 price-based General QM definition; (3) or the government sponsored enterprises (GSEs) Patch (so long as the GSEs remain in conservatorship). The CFPB noted it “believes that an extension of the mandatory compliance date may help to ensure stability and access to affordable, responsible credit in the mortgage market.”

    The CFPB previously announced on February 23 that it is considering whether to revisit the December 2020 General QM and Seasoned QM Final Rules. The first replaced the 43 percent DTI ratio QM standard with a price-based definition and the second created a new QM category based on loan seasoning. Should the CFPB reevaluate aspects of the General QM definition, it could decide to modify the thresholds for Safe Harbor (Average Prime Offer Rate, or APOR, + 150 basis points, or bps) and Rebuttable Presumption (APOR + 225 bps). USMI, along with consumer groups and other industry organizations, has repeatedly urged the CFPB to increase the Safe Harbor threshold to APOR + 200 bps to best level the playing field across the mortgage market and ensure minority, low-income, and first-time homebuyers continue to have access to affordable and safe conventional mortgages.
  • Senate Banking Committee Holds Hearing On CFPB Director Nominee. On March 2, Rohit Chopra, President Biden’s nominee for CFPB Director, testified before the Senate Banking Committee. In his written testimony, Chopra highlighted the ongoing challenges facing Americans in the housing sector due to the impacts of COVID-19 and suggested opportunities for reform in the mortgage market. He said that “fair and effective oversight” in the market could promote a “resilient and competitive financial sector,” while also addressing the systemic inequities faced by families of color. He also said, “administration of consumer protection laws can help families navigate their options to save their homes.”

    In response to questions from Senator Jon Tester (D-MT), Chopra stated that “the CFPB is not here to dictate housing finance policy, it’s to make sure that the prohibitions when it comes to our mortgage laws are adhered to. And when it comes to QM it is important that we balance the consumer protections that Congress has put into place with access to mortgages.”
  • Government Agencies Extend Forbearance & Foreclosure Protections. On February 16, President Biden announced the extension of COVID-19 forbearance and foreclosure protections for homeowners with government-backed mortgages through June 30. This included expanding COVID-19 forbearance to allow for up to 2-3 month extensions for homeowners who requested a forbearance on or before June 30. The administration outlined its priorities to extend protections as providing immediate relief to homeowners across America, supporting hard-hit communities of color, and providing a centralized resource for housing assistance.

    The Federal Housing Finance Agency (FHFA) followed suit February 25 and announced extensions of COVID-19 relief for single-family mortgages guaranteed by the GSEs, Fannie Mae and Freddie Mac. This included extending the moratorium on foreclosures and real estate owned evictions through June 30 and expanding the maximum forbearance period to 18 months for borrowers with active COVID-19 forbearance plans as of February 28. FHFA Director Mark Calabria stated that “[f]rom the start of the pandemic, FHFA has worked to keep families safe and in their home, while ensuring the mortgage market functions as efficiently as possible. Today’s extensions of the COVID-19 forbearance period to 18 months and foreclosure and eviction moratoriums through the end of June will help align mortgage policies across the federal government.”
  • USMI Submits Comments to FHFA on Appraisal Policies. On February 26, USMI submitted a comment letter to FHFA providing feedback on initiatives to modernize appraisal processes and answer specific questions in the agency’s Request for Information (RFI) on Appraisal-Related Policies, Practices, and Processes. USMI wrote that “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.” USMI also emphasized that attention should be given to the expansion of appraisal waivers, particularly for the 80 percent loan-to-value (LTV) market, where “appraisal waivers can materially impact LTV ratios, the pricing and risk assessments associated with the GSEs’ guarantee fees, MI premiums, and loan-level capital requirements.” USMI noted that 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.”
  • What We’re Listening To: Natixis Podcast. USMI President Lindsey Johnson spoke with Natixis Investment Managers’ Vice President of Government Relations Susan R. Olson on the Natixis Insights podcast. They discussed housing finance reform and possible changes under the Biden administration.
  • What We’re Reading: Brookings on GSE Reform. The Brookings Institution published a new report titled, “Government-sponsored enterprises at the crossroads: The value of the Treasury’s interest in the GSEs should be used to increase affordable housing and advance racial equity, and the GSEs should be regulated as utilities.” Authored by Michael Calhoun, President of the Center for Responsible Lending, and Lewis Ranieri, Chairman and CEO of Ranieri Solutions, who assert that “[a] utility structure should be implemented permanently in order to secure the GSEs as an emergency backstop during a crisis, enhance operation of the GSEs in regular times, and advance the GSEs’ public mission.”

Newsletter: February 2021

2021 is off to a quick start as the Biden administration has made housing policy a key focus during its first month in office. U.S. Mortgage Insurers (USMI) is ready to work with the new administration and Congress to advance sound housing policies that create a more equitable and sustainable housing finance system. Below are some of the key developments from the beginning of the year:

USMI Publishes Op-Ed in The Hill on Housing Affordability
USMI Co-Signs Letter with Diverse Collation to Biden Administration on Housing Recovery
President Biden Signs Executive Order on Housing Equity
USMI Sends Letter to HUD Secretary-Designee Marcia Fudge
USMI Publishes Blog on the New Congress
What We Are Reading

  • USMI Publishes Op-Ed in The Hill on Housing Affordability. On January 31, The Hill published an op-ed by USMI President Lindsey Johnson titled, “We must increase access to affordable mortgages for minority borrowers.” Johnson outlines ways the housing finance system can use data-driven, targeted approaches to reduce barriers to affordable mortgages for Black and Hispanic households. She notes that while COVID-19 has compounded existing racial and economic gaps, there are several long-term issues that unnecessarily increase costs or create barriers for minority borrowers seeking to become homeowners. Impending changes like the recently finalized capital requirements for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, could further stress mortgage affordability; while current policies like the GSEs’ arbitrary loan-level price adjustments (LLPAs) further drive up costs and push homeownership out of reach.

    Johnson called on policymakers to recognize the critical role of low down payment mortgage options in facilitating homeownership, noting that more than 80 percent of first-time homebuyers used these options in the past several years. She also called for more targeted assistance programs for borrowers who may lack intergenerational wealth or equity from a previous home to contribute to a down payment, and highlighted Rep. Al Lawson’s (D-FL) First-Time Homeowners Assistance Act and President Biden’s interest in a first-time homebuyer tax credit. Johnson also recommends that the Biden administration assemble a housing affordability task force that “includes broad representation from industry, consumer advocate community, and government to formulate an action plan, build consensus, and get to work.”
  • USMI Co-Signs Letter with Diverse Collation to Biden Administration on Housing Recovery. On January 21, USMI joined the Black Homeownership Collaborative, along with more than 30 industry stakeholders, on a letter to the Biden administration requesting that the American Rescue Plan include assistance to homeowners impacted by COVID-19. The group noted the growing risk to homeownership caused by the pandemic, which has profound implications for people of color, adding that “our country cannot afford to see more damage done to minority homeowners.”

    Specifically, the signatories urged President Biden to include in his relief proposal to Congress a $25 billion Housing Assistance Fund, modeled on the 2010 Hardest Hit Fund, to facilitate direct assistance to homeowners. The direct assistance would provide funds to state housing finance agencies to help households experiencing COVID-19 related hardship bring their mortgage loans current. The letter also called on the Biden administration to extend the foreclosure moratorium and continue to process forbearance applications on federally-backed mortgages.

    The National Housing Conference (NHC), National Fair Housing Alliance (NFHA), Mortgage Bankers Association (MBA), Local Initiatives Support Corporation (LISC), and the Leadership Conference on Civil and Human Rights, were among the letter’s signatories.
  • President Biden Signs Executive Order on Housing Equity. On January 26, President Biden issued an executive order titled, “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies.” The order highlighted that throughout the 20th century, the U.S. government “systematically implemented racially discriminatory housing policies,” the effects of which can be seen today in the racial homeownership gap and the systemic barriers to safe, accessible, and affordable housing for traditional marginalized groups, including people of color. The order further called on the federal government to play a critical role “in overcoming and redressing this history of discrimination and in protecting against other forms of discrimination by applying and enforcing Federal civil rights and fair housing laws.” Before signing the executive order, President Biden stressed that his administration will strive to implement policies that embrace equity, and not merely equality, in order to address systemic issues and provide for equal access to the American Dream of homeownership. To this end, President Biden called on the Secretary of Housing and Urban Development (HUD) to review several rules enacted in 2020 and ensure that all rules comply with HUD’s statutory duty to further fair housing and prevent practices with an unjustified discriminatory effect.
  • USMI Sends Letter to HUD Secretary-Designee Marcia Fudge. Last week, USMI sent HUD Secretary-designate Fudge a letter, outlining several policies HUD should consider to ensure it is effectively promoting sustainable and affordable diverse homeownership. USMI cautioned against simply lowering credit costs, such as reducing the Federal Housing Administration (FHA) mortgage insurance premiums, as doing so will likely only increase demand during a time when supply constraints in the market have caused home prices to increase by nearly 12 percent just in the past year. Further, it will push affordability out of reach for many homeowners, especially borrowers on the lower end of the market. As FHA continues to support borrowers through the COVID-19 crisis, it will be important to not take actions that could potentially undermine FHA’s ability to help existing and future borrowers. The letter also called on policymakers to explore targeted policies to support borrowers most in need, such as targeted down payment assistance (DPA) programs for borrowers who may not even have the resources for a 3 or 3.5 percent down payment, and considering establishing reserve accounts to promote sustainable homeownership. USMI noted, “it is more important than ever that the government-backed FHA program and the conventional market backed by private MI operate in a consistent and coordinated manner,” as the two play an important and distinct role in the market and should not compete for market share.

    Meanwhile, the Senate Banking Committee voted 17 to 7 yesterday to approve Honorable Marcia Fudge as HUD Secretary. She now awaits a confirmation vote by the full U.S. Senate.
  • USMI Publishes Blog on New Congress. USMI posted a blog providing an overview of the 117th Congress with insights on new members to the House Financial Services Committee and Senate Banking Committee, as well as priorities for COVID-19 relief and housing policy.
  • What We Are Reading. The Urban Institute published a new report titled, “The Future of Headship and Homeownership,” which examined trends in homeownership in the United States through 2040 based on current housing policies. The report found that the United States will likely see modest declines in homeownership, mostly for Black households, and that decreasing the racial homeownership gap would require expanded financial education, re-examining the mortgage qualification process, and implementing programs that sustain homeownership for borrowers with less wealth, especially people of color.

Newsletter: December 2020

As the end of 2020 approaches, U.S. Mortgage Insurers (USMI) want to recognize and thank everyone who has worked to support homeowners and the U.S. housing finance system during a year full of unprecedented challenges. This past year has also ushered in significant federal regulatory and policy proposals and changes, and below are some of the key developments that we are following late this year. In 2021, USMI looks forward to working with policy makers and others to support a housing finance system that creates homeownership opportunities backed by private capital for more Americans.

FHFA Issues Final Capital Rule
Treasury Secretary Mnuchin Testifies Before Congress
House Financial Services Chairwoman Sends Letter to President-Elect Biden
Changes in FHFA Leadership
FHA Issues New Loan Limits and Commissioner Dana Wade Reacts
What We Are Reading

  • FHFA Issues Final Capital Rule. On November 18, the Federal Housing Finance Agency (FHFA) released its final rule on the Enterprise Regulatory Capital Framework (ERCF) outlining post-conservatorship capital requirements for the government sponsored entities (GSEs), Fannie Mae and Freddie Mac. The GSEs will collectively be required to hold $284 billion in capital, representing approximately $20 billion more than was outlined in the 2020 proposed rule and more than $100 billion than the 2018 proposal. FHFA Director Mark Calabria said the ERCF “puts Fannie Mae and Freddie Mac on a path toward a sound capital footing” and it is “another milestone necessary for responsibly ending the conservatorships.”  While appropriate capital standards for the GSEs is a critical reform, USMI continues to urge FHFA to implement additional reforms necessary to put the housing finance system on a more stable footing. It is essential for these reforms to occur before the GSEs are released from conservatorship in order to strengthen the housing finance system and ensure that the GSEs’ operations comply with their congressional charters.

    Many organizations commented that the capital rule is an essential component of reforming the nation’s housing finance system, though several housing groups and policymakers also expressed concern about the impact of the final rule on consumers’ cost and access to mortgage finance credit. The Center for Responsible Lending said the final rule “places the burden of future catastrophic risk on the backs of these hardworking families and will unnecessarily raise the cost of mortgages for all borrowers, resulting in limited credit availability.” It added, “the rule pushes homeownership farther away from families of color long denied mortgage credit access.” Similarly, the National Association of REALTORS® also raised concerns about the impact of the rule on the cost of mortgage finance credit. Sen. Sherrod Brown (D-OH), ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, wrote in a statement that “the GSEs help millions fulfill the dream of homeownership – especially those living in underserved rural and urban areas. Director Calabria’s rush to finish this rule without addressing concerns raised about its effects is a recipe for disaster and is patently unfair to America’s homeowners and renters.”

    The final rule goes into effect 60 days after it is published in the Federal Register.
  • Treasury Secretary Mnuchin Testifies Before Congress—Fields Questions on Possible GSE Exit from Conservatorship. On December 1 and 2, Treasury Secretary Steven Mnuchin testified before the Senate Banking Committee and the House Financial Services Committee (HFSC), respectively. While both hearings focused on the Treasury Department’s response to the COVID-19 crisis and its implementation of the CARES Act programs and relief, Secretary Mnuchin also addressed the GSEs’ possible exit from conservatorship.

    Senators on both sides of the aisle expressed concern regarding an exit from conservatorship for the GSEs. Senator Mike Round (R-SD) noted that in “a perfect world that conservatorship should have been ended some time ago,” but voiced his concern that releasing the GSEs too early would call into question the strength of the housing sector and asked Secretary Mnuchin about an appropriate timeline. Secretary Mnuchin reiterated the importance of the GSEs having “appropriate capital” levels before being released and emphasized that the Treasury Department has made “no decisions” on this matter. The Secretary also fielded similar questions and concerns from lawmakers when he appeared before the HFSC the next day. Among those that raised objections to the GSEs’ exit from conservatorship was HFSC Chairwoman Maxine Waters (D-CA), who expressed concerns that the Treasury Department is working with the FHFA to “rush” the GSEs out of conservatorship.

    In a December 10 blog post, the American Action Forum (AAF) opined on the parameters of consent orders for the GSEs and the need for additional actions to ringfence Fannie and Freddie.  AAF President Doug Holtz-Eakin wrote, “The GSEs are notorious for sidestepping caps on compensation, lobbying bans, accounting standards, and more. Capital accumulation is the easy part. A really tight leash would require a consent decree specifying in great detail the management and operation of the GSEs, and with sufficient foresight to anticipate the condition that will prevail in future housing and financial markets.”

    In a blog post released in recent weeks, USMI outlined key reforms that should occur, especially ahead of the possible release of the GSEs from conservatorship.
  • House Financial Services Chairwoman Waters Sends Letter to President-Elect Biden. Last week, Chairwoman Waters sent a letter to President-elect Joe Biden and his transition team detailing recommendations to immediately reverse several of the actions by the Trump Administration that fall within the HFSC’s jurisdiction, including changes to the Consumer Financial Protection Bureau’s (CFPB) rulemaking and enforcement activities, as well as enhancements for oversight of Wall Street. Chairwoman Waters also called on President-elect Biden to issue an order preventing evictions and to promote stable housing during the pandemic. Key housing regulations in the letter include FHFA’s Enterprise Regulatory Capital Framework, which Chairwoman Waters said should be rescinded and also the CFPB’s General Qualified Mortgage rulemaking, which the Chairwoman recommended be paused until “various options can be thoroughly analyzed examining the potential impact for access to credit and consumer protections.”

    More broadly, Chairwoman Waters called on President-elect Biden to support affordable housing by addressing homelessness, promoting housing affordability, and fair housing regulations. The Chairwoman detailed a full list of policy recommendations for the Biden Administration, which can be found here.
  • Changes in FHFA Leadership. FHFA announced that Principal Deputy Director Adolfo Marzol plans to retire on December 18, 2020. Director Calabria praised Marzol for his work at FHFA, specifically his leadership to “spearhead the Enterprise capital rule” and his “central role in the response to COVID-19.” Chris Bosland, FHFA’s Senior Advisor for Regulation, will succeed Marzol as the Principal Deputy Director.
  • FHA Issues New Loan Limits and Commissioner Dana Wade Reacts. On December 2, the Federal Housing Administration (FHA) released its 2021 Nationwide Forward Mortgage Limits. The new national conforming limit is $548,250 for a one-unit property. The FHA’s low-cost area limit for a single unit property will increase to $356,362, or 65% of the new confirming mortgage limit. However, in high-cost areas, the new loan limit is $822,375, or 150% of the 2021 conforming loan limit. This is the fifth year in a row that the FHA has increased the floor limits. FHA Commissioner Dana Wade expressed concern about the increase stating, “FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better-served by the conventional market.” Wade continued, “FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer.”
  • What We Are Reading: Forbes published an article titled, “4 Ways To Get A Low-Down-Payment Mortgage Without An FHA Loan.” The article noted one of the main benefits of private mortgage insurance (PMI) over government-backed loans: “You can cancel [PMI] once you have 20% equity. With an FHA loan, you would have to pay monthly mortgage insurance premiums for at least 11 years, if not for the life of the loan.”

Newsletter: October 2020

October has been a busy month in housing finance. Last week, USMI issued a new report on the strength and resiliency of the private mortgage insurance (MI) industry. The report highlights regulatory and industry-led reforms since the 2008 financial crisis which have enabled it to better serve homebuyers and lenders. It also continued to urge the Federal Housing Finance Agency (FHFA) to develop policies for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, to promote a more stable and equitable housing finance system post-conservatorship.  While all eyes are on the election this week, below are other important issues USMI is tracking:

New USMI Report Released on MI Industry
USMI Blog on FHFA Re-Proposed Enterprise Regulatory Capital Framework (ERCF) and Strategic Plan
USMI’s Comments on FHFA Strategic Plan
FHFA Proposed Rule for New Enterprise Products and Activities
Urban Institute Releases October 2020 Chartbook
USMI President on “Main St. Finance” Podcast
ICYMI: CFPB Extends QM Patch

  • New USMI Report Released on MI Industry. Last week, USMI released a new report titled, “Private Mortgage Insurance: Stronger and More Resilient.” The report highlights significant regulatory and industry-led reforms taken since the 2008 financial crisis to improve and strengthen the role of private MI in the nation’s housing finance system. It analyzes the various steps the industry and regulators have undertaken and continue to take to ensure sustainable mortgage credit through all market cycles and to better serve low down payment borrowers in the conventional market, especially during critical economic times like these.

    Upon the report’s release, USMI President Lindsey Johnson said, “Though private mortgage insurers have been a crucial part of the housing finance system for more than 60 years, this is definitely ‘not your father’s’ MI industry.  Enhanced capital and operational standards, as well as increased active management of mortgage credit risk, including through the distribution of credit risk to the global reinsurance and capital markets, has put the industry in a stronger position.” She added, “These enhancements will enable the industry to be a more stabilizing force through different housing cycles — including the current COVID-19 crisis — which greatly benefits the GSEs and taxpayers and enhances the conventional mortgage finance system.”

    The report details several of the major enhancements to the industry in the last decade, including: Private Mortgage Insurer Eligibility Requirements (PMIERs); New Master Policy; Rescission Relief Principles; and MI Credit Risk Transfer (MI-CRT) Structures. The report provides an update on the growing MI-CRT market, noting that as of October 2020, private MI companies have transferred nearly $41.4 billion in risk on approximately $1.8 trillion of insurance-in-force (IIF) since 2015 using 23 reinsurance deals and 30 insurance-linked note (ILN) transactions.
  • USMI Blog on FHFA Re-Proposed ERCF and Strategic Plan. This week, USMI published a blog titled, “Capital Alone is Not Comprehensive Housing Finance Reform: More Administrative Actions are Required & FHFA’s Re-Proposed Capital Framework Should be Modified.” The piece emphasizes the importance of the appropriate level of capital for Fannie Mae and Freddie Mac, but also the need for additional reforms prior to the GSEs’ exit from conservatorship. FHFA’s re-proposed ERCF will guide FHFA as it works to release the GSEs from conservatorship. As proposed, the ERCF would require the GSEs to hold about 10 times their current capital levels ($243 billion versus $28 billion, respectively, as of Q2 2020) and roughly five times their projected losses under a severe economic downturn.  USMI submitted its comment letter on the re-proposed ERCF in August 2020 and published an executive summary as well.

    USMI agrees that a robust and appropriately tailored capital standard for the GSEs is necessary and should strike the right balance to ensure consumers’ continued access to affordable mortgage credit while also protecting taxpayers. However, the ERCF has several overly conservative elements, such as the treatment of private MI and CRT transactions, as well as numerous non-risk adjusted capital buffers. Instead, USMI suggests FHFA should reduce or eliminate non-risk based elements and build the capital rule around an insurance framework, given the GSEs’ core function is a guaranty business. The framework should ultimately ensure adequate capital for the risks taken by the GSEs, but should not be set to an arbitrarily high level that puts homeownership out of reach for many American families.
  • USMI’s Comments on FHFA’s Strategic Plan. USMI’s blog also discusses USMI’s recommendations for FHFA’s Strategic Plan for Fiscal Years 2021-2024. USMI welcomes FHFA’s work on a post-conservatorship capital framework, but notes that it is important to recognize that capital alone is not comprehensive GSE reform, and additional actions are necessary to reform the housing finance system and put it on more stable footing for the long-term.Earlier this month, USMI submitted a comment letter to FHFA on its Strategic Plan. In its comment, USMI recommended that FHFA take further steps to reduce the GSEs’ risk exposure, level the playing field, and increase transparency around the GSEs’ pricing and business operations. USMI called for FHFA to take five specific actions in advance of the GSEs’ exit from conservatorship:
    1. Limit the GSEs’ activities to those necessary to fulfill their intended role of facilitating a liquid secondary market for mortgages, preserving the “bright line” separation between the primary and secondary mortgage markets;
    2. Increase transparency around the GSEs’ operations, credit decisioning, technologies, and role in the housing finance system;
    3. Require a “notice and comment period” process and prior approval for new products and activities at the GSEs;
    4. Require that counterparty standards be set by or in coordination with FHFA, and not just the GSEs; and
    5. Promote a clear, consistent, and coordinated housing finance system.
  • FHFA Proposed Rule for New Enterprise Products and Activities. Last week, FHFA released a proposed rule concerning “Prior Approval for Enterprise Products” that would require the GSEs to provide notice to FHFA before undertaking a new activity and obtain prior approval from FHFA before offering a new product. USMI welcomes Director Calabria’s effort to establish a more transparent and objective process for the development and implementation of new GSE products and activities. USMI further believes that the GSEs should only introduce new products, activities, and pilots when there is clear and compelling evidence that the GSEs are needed to fill a market void that the private market cannot meet. This rule would allow a rigorous review of the GSEs’ efforts and ensure that the GSEs’ activities are not duplicative nor unfairly competitive with the primary and private market participants.

    In response to the release of the proposed rule, the National Taxpayers Union (NTU) published a blog  titled, “Latest GSE Rule Protects Taxpayers and Businesses from Government Overreach.” NTU praised the rule as it would “help to ensure that the GSEs are neither crowding out private market competitors nor expanding obligations back-stopped by taxpayers.” NTU said the proposed rule is a “constructive step that protects taxpayers and private businesses from government overreach.”
  • Urban Institute Releases October 2020 Chartbook. This week, the Urban Institute published its October chartbook on housing finance. Included in this comprehensive analysis of industry data are updates on the MI industry, beginning on page 32. The Chartbook highlights that “Mortgage insurance activity via the FHA, VA and private insurers increased from $197 billion in Q2 2019 to $327 billion in Q2 2020, a 57.4 percent increase.  In the second quarter of 2020, private mortgage insurance written increased by $51.3 billion, FHA increased by $17.2 billion and VA increased by $56.4 billion relative to Q2 2019.”
  • USMI President on “Main St. Finance” Podcast. USMI’s members work to help low down payment borrowers have access to affordable mortgage credit. To share that message, USMI President Lindsey Johnson joined the “Main St. Finance” podcast to discuss the 20 percent down payment myth and the different low down payment options available to borrowers. Specifically, she explained how private MI bridges the down payment gap to help home-ready buyers get in their home sooner while also protecting lenders, the GSEs, and taxpayers from mortgage credit-related losses. Listen to podcast here.
  • ICYMI: CFPB Extends GSE Patch. On October 22, the Consumer Financial Protection Bureau (CFPB) issued a final rule to extend the GSE Patch until the CFPB implements a new General Qualified Mortgage (QM) definition. USMI previously submitted a comment letter on the Bureau’s proposed updates to the General QM definition, as well as a comment letter which recommended the CFPB set the sunset date for the GSE Patch to be at least six months after the effective date of the General QM definition final rule.

Newsletter: September 2020

As Congress returns from the August recess, regulators closed out the public comment periods for two proposed rules that will substantially impact the housing finance system and borrowers’ access to mortgage credit. Though there has been considerable focus on these important rulemakings over the past several months, policymakers, industry stakeholders, and USMI members remain hard at work supporting the housing finance system as we continue to adapt to and navigate the health and economic consequences of the COVID-19 pandemic. Below are the latest happenings from USMI and key topics we are tracking.

USMI Submits Comments to FHFA on Proposed Enterprise Regulatory Capital Framework (ERCF)
FHFA Director Calabria Testifies Before House Financial Services Committee
USMI Submits Comments to CFPB on General Qualified Mortgage (QM) Definition
Coalition Urges CFPB to Increase the QM Safe Harbor Threshold
ICYMI: USMI Column Published in The Dallas Morning News

USMI Submits Comments to FHFA on Proposed Enterprise Regulatory Capital Framework. On August 31, USMI submitted its comments to the Federal Housing Finance Agency (FHFA) on the re-proposed Enterprise Regulatory Capital Framework (ERCF). In its comments, USMI emphasized the importance of constructing a balanced, transparent, and analytically justified post-conservatorship capital framework for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. USMI President Lindsey Johnson said that “while sufficient levels of capital are important to the sustainable operation of Fannie Mae and Freddie Mac, excessive capital requirements could have a detrimental effect on mortgage availability.” She also added that these excessive capital requirements could, in turn, push mortgage lending outside of the conventional mortgage market.

USMI also called for more transparent and objective treatment of the GSEs’ counterparties, especially private mortgage insurers that already meet a set of rigorous capital and operational requirements known as the Private Mortgage Insurer Eligibility Requirements (PMIERs). In its comment letter, USMI provided the FHFA with detailed analysis to demonstrate that the capital credit for private MI should be increased to be consistent with historical analysis.  Similarly, USMI suggested that the proposed rule should encourage, and not discourage, private capital to absorb more risk in front of the GSEs and taxpayers.  

A number of other organizations shared similar assessments and recommendations.  The Urban Institute said that “the capital requirements on purchase loans should be lower, and more credit should be given to mortgage insurance.” National Taxpayers Union recommended that “[t]he proposed rule should promote, and not disincentivize private capital—including transferring first-loss credit risk through the use of loan level credit enhancement, such as private mortgage [insurance] and through transferring other layers of credit risk through responsible CRT.”

Finally, USMI noted that the revised capital standard is only one element of comprehensive GSE reform, calling on the FHFA to ensure the GSEs are appropriately regulated, maintain their position as market makers, and preserve the bright line separation between the primary and secondary mortgage markets.

USMI’s full comments on the 2020 proposed rule can be found here, an executive summary can be found here, and its comments on the 2018 proposal can be found here.

FHFA Director Calabria Testifies Before House Financial Services. On September 16, FHFA Director Mark Calabria testified before the House Financial Services Committee and provided an overview of the FHFA’s response to the COVID-19 pandemic and the ERCF. A number of members on the Committee focused their comments and questions on the ERCF with Representative Steve Stivers (R-OH) noting in his comments to Director Calabria that in the ERCF “one of the things that doesn’t get credit is MI coverage that’s above the minimum level.”  Congressman Stivers and several representatives from both sides of the aisle also shared concerns that the ERCF would negatively impact and inhibit the CRT market.  Director Calabria committed to following up with Congressman Stivers to provide additional details on capital credit for greater MI coverage as well as credit for CRT.  Additionally, Chairwoman Maxine Waters (D-CA) as well as Representatives Nydia Velazquez (D-NJ), Bill Foster (D-IL), and Alma Adams (D-NC) shared concerns that the capital requirements outlined in the ERCF are excessive and could increase mortgage rates, especially for minority borrowers. Finally, there were a number of questions and comments related to the GSEs’ exit from conservatorship and other reforms that should happen prior to their exit. Representative Ted Budd (R-NC) questioned Director Calabria about the GSEs pilot programs, IMAGIN and EPMI, and asked, “[s]hould a GSE in conservatorship or in any state be permitted to set capital [standards] for counterparties and then compete against them in the primary market?” Director Calabria shared that this is a regulatory issue that was delayed by COVID-19, but that it is an issue the FHFA is committed to resolving. 

USMI Submits Comments on General Qualified Mortgage Definition. On September 8, USMI submitted comments to the Consumer Financial Protection Bureau (CFPB) for its proposed rule on the General Qualified Mortgage (QM) Definition. USMI urged the Bureau “to strike a proper balance between prudent and transparent underwriting standards, and access to affordable and sustainable mortgage finance credit for home-ready borrowers.” It further noted that the current proposed rule could limit access to the conventional market for traditionally underserved borrowers. In its letter, USMI recommended that the QM Safe Harbor should be set at 200 basis points (bps) above the Average Prime Offer Rate (APOR) to ensure the QM definition does not inadvertently limit access to credit for home-ready borrowers, particularly Black and Hispanic borrowers who are twice as likely to have spreads above the proposed 150 bps Safe Harbor threshold.

USMI also agreed with the Bureau’s assessment that a hard 43 percent debt-to-income (DTI) ratio would be the most harmful option for the General QM definition because it would severely limit access to credit in the conventional market. This assessment was consistent with USMI’s 2019 comment letter in response to the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) on the QM Definition. Also consistent with its 2019 comment letter, USMI suggests a better approach to a General QM definition would be a standard that includes a higher DTI threshold up to 50 percent with specified compensating factors. 

USMI also urged the CFPB to allow sufficient time for a smooth transition from the temporary QM category, the “GSE Patch,” to the new General QM definition. In August, USMI submitted comments to the CFPB on the GSE Patch, recommending the Bureau set the sunset date for the GSE Patch to be at least six months after the effective date of the General QM definition final rule. USMI wrote that “this time will be critical given the extensive and still undetermined scope of COVID-19 on the financial services industry as it focuses resources on responding to the economic and health fallout from the pandemic.”

Coalition Urges CFPB to Increase the QM Safe Harbor Threshold. USMI also co-signed a joint industry trade letter with 11 other housing policy and consumer advocate groups calling on the CFPB to increase the QM Safe Harbor threshold from 150 to 200 bps over the current APOR. USMI previously discussed the need for increasing the Safe Harbor threshold to mitigate borrower impact in a blog post. USMI wrote that based on its analysis of “mortgage originations, loan performance, market dynamics, and the need to ensure consumer access to affordable mortgage finance, we recommend that this threshold should be pegged to the same threshold as the QM status, which the NPR suggests should be 200 bps.” Doing so would result in a more level playing field and by changing that threshold, would mitigate the impact on borrowers.

ICYMI: USMI Column Published in The Dallas Morning News. On August 17, USMI published its latest column titled, “The Smarter Way to Buy a Home.” USMI breaks down the 20 percent down payment myth and explains how private mortgage insurance can help home-ready buyers get in their house sooner. USMI also highlights that private mortgage insurance is temporary, unlike other low-down payment options. USMI notes that once the borrower reaches 20 percent equity in their house, private mortgage insurance cancels—which is a significant advantage to borrowers considering a low down payment mortgage. Read the column in The Dallas Moring News.

Newsletter: August 2020

While this summer has posed new and unexpected challenges, policymakers and U.S. Mortgage Insurers (USMI) and our members continue to work hard to make sure the U.S. housing system remains strong as we face unprecedented economic and health challenges resulting from COVID-19. Below are topics we have been following:

USMI Member Company COVID-19 Response
CFPB Kraninger’s Semi-Annual Hearings
USMI Submits Comment Letter to CFPB on GSE Patch Extension
SCOTUS to Hear Arguments on FHFA’s structure
Dana Wade Confirmed as FHA Commissioner 
USMI President in Mortgage Professional America 

  • USMI Member Company COVID-19 Response. USMI updated its COVID-19 resource webpage with its members’ response fact sheet, highlighting many of the important actions that USMI members have taken to support homeowners, servicers, and lenders across the country during the pandemic. Because of the critical role USMI members play in the housing finance system, the mortgage insurance (MI) industry is committed to supporting the federal government’s robust mortgage relief initiatives, including the nationwide forbearance programs implemented by Fannie Mae and Freddie Mac (GSEs). The fact sheet outlines areas of common ground between USMI members and how they have focused their efforts on helping borrowers remain in their homes by supporting their lender customers during these challenging times. 
  • CFPB Kraninger’s Semi-Annual Hearings. On July 29 and 30, Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger testified before the Senate Banking Committee and House Financial Services Committee, respectively. Both hearings focused on the Bureau’s response to the COVID-19 pandemic and on its ongoing rulemakings and supervision activities. In her written testimony submitted to the Senate Banking Committee, Director Kraninger provided an update on the CFPB’s proposed changes to the GSE provision (GSE Patch) of the Bureau’s Ability-to-Repay (ATR)/Qualified Mortgage (QM) Rule, which is set to expire in January 2021. The CFPB is still considering removing the QM loan definition’s 43 percent debt-to-income (DTI) ratio and replacing it with a pricing threshold.

    During the Senate Banking hearing, Senator Tim Scott (R-SC) asked Director Kraninger why the QM standard and safe harbor thresholds would be different and stated, “I think we should do all that we can for credit worthy borrowers to become homeowners when it makes sense. By harmonizing the QM and the safe harbor, it might make it easier for financial institutions to not go to the default position of the safe harbor that’s 50 (basis) points lower.” In addition, during the House Financial Services Committee hearing, members from both parties expressed interest in the CFPB’s rulemaking on the General QM definition and its effect on prudent underwriting and consumers’ access to credit. Representatives Bill Foster (D-IL) and French Hill (R-AR) emphasized that any new QM standard should retain robust underwriting standards to ensure ATR and promote sustainable homeownership. Further, Representatives Hill and Steve Stivers (R-OH) noted that there should be a single pricing standard for QM and Safe Harbor since, unlike the 2013 ATR/QM Rule, pricing would be used to measure both under the proposed rule.
  • USMI Submits Comment Letter to CFPB on GSE Patch Extension. On August 10, USMI submitted a comment letter to the CFPB in response to the Notice of Proposed Rulemaking (NPR) regarding the extension of the sunset date for the Temporary GSE QM definition, or the “GSE Patch,” under the Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z), which is currently set to expire on January 10, 2021. USMI recommended to Director Kraninger that the CFPB should “set the sunset date for the GSE Patch to be at least six months after the effective date of the finalized General QM definition rule.” Doing so would allow all industry stakeholders sufficient time to fully understand and implement the new rule and afford industry participants an appropriate amount of time to develop, test, and implement new models to facilitate a smooth transition to the new general QM framework. Moreover, as the financial services industry grapples with implications of COVID-19 and works to support market participants, consumers, and the economy, USMI believes a six-month overlap period would promote an orderly implementation of the new General QM definition while offering continued assistance to homeowners across the county.

    In June 2020, the CFPB issued a NPR on the General QM definition under the Truth in Lending Act (Regulation Z) and the GSE Patch. The Bureau’s NPR proposes to change the current QM standard in favor of a pricing threshold; specifically, the difference between the loan’s Annual Percentage Rate (APR) and the Average Prime Offer Rate (APOR) for a comparable transaction at 200 basis points (bps) above APOR. The Bureau justifies this threshold using early delinquency data as an indicator of determining consumers’ ATR.

    In a September 2019 comment letter to the CFPB, USMI emphasized that, should the Bureau move forward to replace the QM definition with one based on a pricing threshold, it can and should increase the spread that is used to delineate Safe Harbor loans. The previous 2013 ATR/QM Rule created two legal presumptions for QM loans: “Safe Harbor” and “Rebuttal Presumption.” These presumptions have, in turn, created a norm by which lenders will not typically lend above the Safe Harbor line and avoid making Rebuttable Presumption loans as to avoid risk to legal responsibility. This standard has disproportionality impacted Black and Hispanic homebuyers, who were twice as likely as White borrowers to have low down payment conventional purchase loans outside of the Safe Harbor. Under the proposed rule, many of the borrowers who are above the 150 bps threshold will be left only with the option of a Federal Housing Administration (FHA) loan, which means they have vastly different competitive choices in terms of product offerings and loan terms. Further, due to the discrepancies for how this threshold is calculated between the conventional and FHA markets, leaving the Safe Harbor threshold at 150 bps will arbitrarily distort the market and shift borrowers to FHA. 


    Based on this, USMI and other industry members recommend that the Bureau increase the Safe Harbor threshold to 200 bps above APOR to be consistent with the proposed QM APOR threshold that the Bureau recommended in its June 2020 NPR.
  • SCOTUS to Hear Arguments on FHFA’s structure.  On July 9, the Supreme Court announced that it would hear Collins v. Mnuchin upon its return in October. The suit questions the constitutionality of the FHFA’s single-director structure. Currently, the FHFA director is appointed to serve a five-year term and can only be removed “for-cause;” he or she cannot be fired at-will by the president. This follows the Court striking down the CFPB’s single-director structure in a 5-4 ruling in Seila Law v. CFPB in June, declaring it unconstitutional and severable from the other provisions of the Dodd-Frank Act. 

    In a statement, the FHFA said it did not believe the Court’s ruling applied to the FHFA. “The Seila Law decision does not directly affect the constitutionality of FHFA, including the for-cause removal provision.” It continued, “FHFA looks forward to the U.S. Supreme Court taking up the Collins case and clarifying these important issues.”
  • Dana Wade Confirmed as FHA Commissioner. On July 28, the Senate confirmed Dana Wade in a 57-40 bipartisan vote as commissioner of the FHA. USMI issued a statement praising Wade’s confirmation. USMI President Lindsey Johnson said, “Commissioner Wade has shown commitment to keeping FHA’s core mission of providing affordable housing opportunities to moderate and low-income households, who need the agency’s 100 percent taxpayer-backed loans the most. We are confident that Commissioner Wade will continue to carry out this mission as she understands the important role the agency plays in our housing financial system.” Mortgage Professional America included USMI’s statement in its coverage of Wade’s confirmation.
  • USMI President in Mortgage Professional America. Mortgage Professional America published USMI President Lindsey Johnson’s op-ed titled, “Low Down Payments Backed by Mortgage Insurance More Important Than Ever.” Using data from USMI’s 2020 “MI in Your State” report, Johnson explains why low down payment lending will be even more critical for future homeowners as the country endures and recovers from the current COVID-19 pandemic. The report found that it could take the average American homebuyer over 20 years to save for a 20 percent down payment. With private MI, the wait time could drop to just 7 years with a 5 percent down payment. Low down payments with private MI enable more well-qualified borrowers to become homeowners while keeping more cash on hand, a critical aspect during these trying times. Private MI also assumes the first layer of protection against mortgage credit risk protecting the federal government, and thus, American taxpayers. She concludes stating, “right now, more than ever, we are even more aware of the benefits of owning a home—from building wealth to creating stability to the importance of having a safe place to call your own.”

Newsletter: July 2020

We wish everyone a happy, healthy July 4th holiday and thank those who continue to serve the nation on the front lines of the COVID-19 health crisis. USMI and our members remain committed to supporting the U.S. housing finance system, ensuring homeowners continue to have access to prudent, affordable, low down payment mortgages to keep more cash on hand, especially during these critical and uncertain economic times. Additional information can be found on USMI’s COVID-19 Resource page. Below are updates related to COVID-19 as well as other recent significant policy and regulatory developments.

USMI Releases its Annual State-by-State Report
New Board Chairman at USMI
FHFA and the GSEs Provide Clarity on PMIERs Amid COVID-19
SCOTUS Rules on CFPB’s Single-Director Structure
CFPB Proposes Rules on QM Definition and Extension of the GSE Patch
FHFA Issues Re-Proposed Enterprise Capital Rule
ICYMI: New Video Explains How Private MI Work

  • USMI Releases its Annual State-By-State Report. On June 22, USMI released its annual report on low down payment lending at the state level. The report highlights that the number of low down payment loans backed by private mortgage insurance (MI) increased 22.9 percent in 2019; meanwhile saving for a 20 percent down payment could take potential homebuyers 21 years to save — three times the length of time it could take to save a 5 percent down payment. USMI also found that the top five states for low down payment home financing with private MI were Texas, California, Florida, Illinois, and Ohio.

    Upon release of the report, USMI President Lindsey Johnson noted that “Given the current economic environment and the desire of many people to keep more cash on-hand, low down payment loans are more important than ever. Loans backed by private MI are a great option as a time-tested means for accessing homeownership sooner while still providing credit risk protection and stability to the U.S. housing system.” See coverage of the report by National Mortgage News, Forbes, and Bankrate.
  • New USMI Board Chairman. On July 1, USMI announced that Derek Brummer, President of Mortgage at Radian Group, will serve as the Chairman of USMI’s Board of Directors. Brummer, who was appointed Radian’s President of Mortgage in February, previously served as USMI’s Vice Chairman of the Board and brings extensive experience in housing finance. In the announcement, Brummer stated that he looks “forward to ensuring the industry remains well-positioned to serve as an important source of strength for the housing finance system during all market cycles, so consumers continue to have access to affordable, low down payment, conventional mortgages.”
  • FHFA and the GSEs Provide Clarity on PMIERs Amid COVID-19. On June 26,the Federal Housing Finance Agency (FHFA) and the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, provided guidance on the Private Mortgage Insurer Eligibility Requirements (PMIERs), PMIERs 2020-01, effective June 30, 2020. PMIERs are a set of operational and risk-based capital requirements implemented in 2015 and updated in 2018 for private MI companies to be approved to insure loans acquired by Fannie Mae and Freddie Mac. Due to the unprecedented nature of the COVID-19 disaster, including its national scope and the ongoing duration of the health and economic effects, the PMIERs language needed additional clarity, which USMI is pleased FHFA, Fannie Mae and Freddie Mac understood and provided.

    USMI President Lindsey Johnson said in a statement, “USMI supports the actions taken by federal policymakers, particularly the FHFA, to stabilize the economy and provide assistance to those who have been impacted by the COVID-19 pandemic. USMI’s member companies are well-positioned to support the FHFA and GSEs’ efforts to ensure that homeowners who have been affected by COVID-19 are able to stay in their homes and maintain a safe and secure environment for their families.”
  • SCOTUS Rules on CFPB’s Single-Director Structure. On June 29, the Supreme Court ruled in a 5-4 decision in Seila Law v. CFPB that the single-director structure of the Consumer Financial Protection Bureau (CFPB), where the leadership by a single director that is removable only “for cause” (inefficiency, neglect, or malfeasance), violates the Constitution. However, the Court did not invalidate the agency in its entirety. The majority held that the removal protection of the CFPB Director is severable from the other provisions of the Dodd-Frank Act that created the CFPB and defined its authorities and responsibilities. The CFPB did not challenge the decision and the White House released a statement saying the Supreme Court’s “decision represents an important victory for the fundamental principle that government officials should be accountable to the American people.” Given the FHFA has a similar structure, it is likely the legal conclusion may be applied to the FHFA. The Court’s decision opens the door for any future new administration to usher in new leadership of these two independent agencies.
  • CFPB Proposes Rules on QM Definition and Temporary Extension of the GSE Patch. With the temporary QM category, also known as the “GSE Patch,” set to expire on January 10, 2021, the CFPB released Notices of Proposed Rulemakings (NPRMs) on a new QM definition and to temporarily extend the GSE Patch on June 22, 2020. Comments for the general QM definition are due 60 days after the rule is published in the Federal Register. In a statement after the release of the NPRMs, USMI President Lindsey Johnson stated, “USMI members, as takers of first-loss mortgage credit, emphasized the need to balance prudent underwriting with a clear standard that maintains access to mortgage finance for home-ready borrowers.”

    The CFPB previously released an Advanced NPRM on the QM definition over a year ago, after which USMI submitted a comment letter that among other things, recommended replacing the current GSE Patch by establishing a single transparent and consistent QM definition that balances access to mortgage finance credit and proper underwriting guardrails to ensure consumers’ ability to repay (ATR). USMI specifically recommended that the Bureau establish a list of transparent mitigating underwriting criteria (compensating factors) for loans with a debt-to-income ratios above 45 percent and up to 50 percent. USMI also recommended that, to provide a more level playing field between the Federal Housing Administration (FHA) and the conventional market, the QM Safe Harbor annual percentage rate (APR) cap of the Average Prime Offer Rate (APOR) + 150bps needs to be increased to not arbitrarily shift the market to FHA, or leave some home-ready borrowers without access to mortgage finance credit. Setting the cap at APOR + 200bps would limit this arbitrary shift in the market, preserve greater private capital participation in the pricing of risk, and promote better taxpayer protection.

    The Bureau’s June 2020 NPRM on the QM definition largely proposes an approach that would rely on a pricing spread between APR and APOR to determine QM status. While it is notable that the Bureau retained a QM Safe Harbor and QM Rebuttable Presumption, it is critical that the Safe Harbor threshold be increased from 150bps to 200bps above APOR, as it has been demonstrated that few loans are done outside of Safe Harbor. As USMI commented in its 2019 comment letter, it is essential that the Safe Harbor threshold be moved from 150bps to 200bps to ensure that creditworthy borrowers are not arbitrarily left only with the option of an FHA mortgage or left out of the market entirely, and to promote greater private capital participation in the pricing of risk and better taxpayer protection.
  • FHFA Issues Re-Proposed Rule on Enterprise Capital. Another very significant rule recently released is the re-proposed Enterprise Regulatory Capital Framework (ERCF), which was published in the Federal Register this week, starting the 60-day clock for comments to be submitted. FHFA noted that one of the key reasons for the re-proposed rule is that establishing robust capital standards is a key step in the process to end the GSEs conservatorships, which was “a departure from the expectations of interested parties at the time of the 2018 proposal.” FHFA also noted that the re-proposed rule increases the quantity and quality of the regulatory capital at the GSEs to ensure their safety and soundness—with the overall capital required under the 2020 proposal being roughly $240 billion in loss absorbing capital—nearly $100 billion more than the 2018 proposal. FHFA officials believe that the re-proposed rule puts the GSEs on track to begin raising capital as soon as next year.

    USMI submitted a comment letter to the FHFA in 2018 when the ERCF was originally proposed. On May 21, USMI issued a statement in response to the re-proposed rule, sharing its support for “meaningful capital requirements” and recognizing the ERCF’s importance in determining the future role of the GSEs, how private capital, such as private MI, will be able to continue to support the conventional market to protect taxpayers, and importantly, determine consumers’ access to and cost of mortgage finance credit.
  • ICYMI: New Video Explains How Private MI Works. As part of June’s National Homeownership month, USMI released a new video helping first-time homebuyers understand whether they are mortgage ready. The video explores low down payment financing options to future homeowners and explains the benefits of private mortgage insurance.

Newsletter: February 2020

We are ready for March Madness but will take the extra day in February to highlight what has been a very busy start to 2020 for housing policy!

CFPB Director on Qualified Mortgage (QM) Rule
Industry and Consumer Groups Call for Maintaining Prudent Underwriting Guardrails as Part of QM Patch Replacement
CFPB Director Kathy Kraninger Testifies before House Financial Services Committee
USMI Speaks on QM “in a Post-Patch World”
USMI President Lindsey Johnson at Structured Finance Association
FHFA Moves Ahead with Plans to End Conservatorship
FHFA Issues and RFI on FHLBank Membership
Administration and Congress Take Action on Housing Affordability
Dana Wade Nominated as FHA Commissioner
USMI President Lindsey Johnson on the FHA Insurance Fund
ICYMI: Extension of the MI Tax Deduction

 

  • Consumer Financial Protection Bureau (CFPB) Director on QM Rule. On January 17, CFPB Director Kathy Kraninger sent a letter to select members of Congress notifying them of the CFPB’s intentions to eliminate the debt-to-income (DTI) ratio requirement and move to a standard based on an alternative metric, specifically a pricing threshold. She wrote that the CFPB would extend the QM definition “for a short period until the effective date of the proposed alternative or until one or more of the GSEs [government sponsored enterprises] exits conservatorship, whichever comes first.” As for the DTI requirement, Director Kraninger proposed replacing it for a pricing threshold, such as the difference between the loan’s annual percentage rate (APR) and the average prime offer rate (APOR) for a comparable transaction (the APOR-approach).
  • Industry and Consumer Groups Call for Maintaining Prudent Underwriting Guardrails as Part of QM Patch Replacement. In response, on January 21, USMI joined eight other organizations on a letter to Director Kraninger recommending the CFPB replace the current QM definition with one that relies on measurable underwriting thresholds and the use of compensating factors (such as liquid reserves, limited payment shock, and/or a larger down payment from the borrower’s own funds) for higher risk mortgages (those loans with DTI ratios above 45 and up to 50 percent). This letter goes on to explain how alternative recommendations (e.g., using pricing thresholds) would have a negative impact on minority and lower income borrowers and should be avoided through the better approach of relying on other compensating factors that enable prudent underwriting and affordable access to credit.

    The organizations also urged “that the transition period from the existing GSE Patch to the new QM framework be sufficiently long to allow market participants adequate time to plan for, and adjust to, new rules and underwriting standards” in order to avoid the risks of regulatory uncertainty “that might cause mortgage originators to retreat from lending to creditworthy homebuying and refinancing borrowers.”
  • Kraninger Testifies before House Financial Services Committee. On February 6, Director Kraninger testified before the House Committee on Financial Services where the discussion on the QM definition continued. Representatives Nydia M. Velasquez (D-NY), Brad Sherman (D-CA), French Hill (R-AR), Warren Davidson (R-OH), Alma Adams (D-NC), and Anthony Gonzalez (R-OH) all raised questions on the CFPB’s plan to replace the DTI requirement and its potential impact on the housing finance market and on low-to-moderate income borrowers’ access to safe and affordable mortgage finance credit. When asked on the timing for the release of the QM Notice of Proposed Rulemaking (NPR), Director Kraninger responded “no later than May,” which was affirmed this week by the Bureau when it formally announced it will issue proposed changes to the QM definition by May. Director Kraninger said, “[t]he bureau will propose an alternative, such as a pricing threshold, to better ensure that responsible, affordable mortgage credit remains available to consumers.” If you have not read it yet, USMI released a blog last year with observations and recommendations for replacing the QM and balancing prudent underwriting with borrower access to affordable mortgage finance in the conventional market.
  • USMI Speaks on QM “in a Post-Patch World.” On February 18, USMI President Johnson spoke at a panel co-hosted by the Mortgage Bankers Association (MBA) and Women in Housing Finance (WHF) on the future of QM after the expiration of the QM Patch. The panel discussed how the housing industry could change in the near future and the roles that other housing intuitions, like private mortgage insurance (MI), will play in supporting a vibrant housing industry. 
  • USMI President Lindsey Johnson at Structured Finance Association (SFA). This week, USMI President Johnson, along with Pete Carroll from Core Logic, Andrew Davidson from Andrew Davidson & Co., Rajiv Kamilla from Goldman Sachs, Larry Platt from Mayer Brown, and Jeremy Switzer from Penny Mac, spoke on a panel at SFA’s conference in Las Vegas titled, “Building Industry Governance for the PLS Market.” Johnson discussed the important governance changes and enhancements in quality controls and industry practices and regulation that have occurred in the conventional market that would greatly benefit the private label security (PLS) market, including the underwriting criteria that have developed under the QM Patch. Johnson also spoke about the role private MI can play to bring greater credit quality assurances and ensure prudent risk management in the PLS market.
  • Federal Housing Finance Agency Moves Ahead with Plans to End Conservatorship. On February 3, FHFA awarded the investment bank Houlihan Lokey Inc. a potential $45 million advisory contract to help recapitalize the GSEs as part of the government’s plan to end their conservatorships. FHFA Director Mark Calabria stated “[h]iring a financial advisor is a significant milestone toward ending the conservatorships of the enterprises,” adding that “[t]he next major milestone for the FHFA is the re-proposal of the capital rule, which will happen in the near future.”
  • FHFA Issues a Request for Input (RFI) on Federal Home Loan Bank (FHLBank) Membership. Earlier this week, the FHFA issued a RFI for FHLBank membership, in which it seeks input “on whether the FHFA’s existing regulation on FHLBank membership ensures the FHLBank System, consistent with statutory requirements, remains safe and sound, provides liquidity for housing finance through the housing and business cycle, and supports the FHLBanks’ housing finance and community development mission.”
  • Administration and Congress Take Action on Housing Affordability. Yesterday, the FHFA announced the authorization of payments for 2019 from the GSEs to the Department of Housing and Urban Development (HUD) for the Housing Trust Fund and Treasury for the Capital Magnet Fund. The Housing Trust Fund, an affordable housing program designed to increase and preserve the supply of decent, safe, and sanitary affordable housing for extremely low- and very low-income households, received $326.4 million and the Capital Magnet Fund, a program focused on the developments, preservation, rehabilitation, and purchase of housing for low income families, received $175.8 million. Congress also took steps this week to explore housing affordability and the House Financial Services Committee marked up and approved four bills concerning housing and community development:
    • H.R. 5931, the “Improving FHA Support for Small Dollar Mortgages Act of 2020” (Clay-Stivers), would require FHA to conduct a review of its policies to identify barriers to supporting mortgages under $70k and report to Congress within one year with a plan for removing such barriers.  The bill was reported favorably to the House by a recorded vote of 48 to 0.
    • H.R. 149, the “Housing Fairness Act of 2020” (Rep. Green), would authorize increased funding for HUD’s Fair Housing Initiatives Program in addition to creating a new competitive matching grant program to support comprehensive studies of the causes and effects of ongoing discrimination and segregation, and the implementation of pilots to test solutions. The bill was reported favorably to the House by a recorded vote of 33 to 25.
    • H.R. 4351, the “Yes in My Backyard Act” (Rep. Heck), would require localities receiving CDBG funding to submit a plan to track and report on the implementation of certain land use policies that promote housing production. The bill was agreed to and reported favorably to House by a voice vote.
    • H.R. 5187, the “Housing Is Infrastructure Act” (Chairwoman Waters), would authorize $100.6 billion for investments in the nation’s affordable housing infrastructure, including public housing, supporting housing for seniors and people with disabilities, making housing affordable to the lowest-income people, and rural and Native American housing.  The bill was reported favorably to the House by a recorded vote of 33 to 25.
  • Dana Wade Nominated as Federal Housing Administration (FHA) Commissioner. On February 20, the White House announced President Trump’s intent to nominate Dana Wade as FHA Commissioner and oversee the agency’s $1.3 trillion portfolio. USMI President Lindsey Johnson issued a statement applauding the nomination, stating that USMI “look[s] forward to working closely with Dana Wade in seeking ways to establish a more complementary, collaborative, and consistent housing finance system that prudently enables homeownership for American families while also protecting taxpayers.”
  • USMI President Lindsey Johnson on the FHA Insurance Fund. Scotsman Guide shared USMI President Lindsey Johnson’s views on the current health of the FHA insurance fund in an article on the wider industry debate surrounding the FHA’s insurance fund. Johnson noted that the insurance fund is highly vulnerable to market changes, adding that “[t]axpayers are currently exposed to over $1.19 trillion in outstanding mortgage risk at the FHA. This would only increase if FHA insurance premiums were reduced. Also, any change to FHA’s life-of-loan coverage would mean exposing taxpayers to further undo risk.”
  • ICYMI: Extension of the MI Tax Deduction. In January, Congress passed the Further Consolidated Appropriations Act of 2020, which retroactively extended tax deductions for mortgage insurance premiums to calendar year 2018 and remains in effect throughout 2020. USMI President Lindsey Johnson issued a statement praising the extension saying, “[w]e are pleased Congress extended the mortgage insurance tax deduction for years 2018 through the end of 2020. Private MI has helped more than 30 million middle-income Americans become homeowners over the last 60 years, and for over 10 years the deductibility of mortgage insurance has helped benefit millions of these hard-working borrowers.” According to the most recent IRS statistics of income, in 2017 alone more than 2.285 million taxpayers benefited from the MI premium tax deduction. The deduction is available to homeowners (married filing jointly) with MI who have adjusted gross incomes under $100,000 and phases-out for adjusted gross incomes up to $110,000. Earlier this week, the IRS issued a news release (IR-2020-44) describing the procedure for taxpayers to claim benefits of for expired provisions for already-closed tax years. According to guidance from the IRS, homeowners seeking to retroactively claim a tax deduction for mortgage insurance premiums for tax year 2018 will need to file an amended return using form 1040-X.

Newsletter: December 2019

As the year draws to a close, the focus is on the end-of-year legislative and rulemaking deadlines—as well as looking at what’s ahead for housing in 2020. Earlier this month, the Urban Institute published an updated report that provides analysis on private mortgage insurance (MI) borrowers and the role private MI plays in reducing mortgage risk exposure. In November, the Federal Housing Finance Agency (FHFA) announced its plans to re-propose the Enterprise Capital Rule in 2020. In addition, Citizens Against Government Waste (CAGW) and National Taxpayers Union (NTU) released analysis of the Trump Administration’s Housing Finance Reform Plans, emphasizing the need to transition the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, out of conservatorship. It highlights the role that private capital can play in facilitating such a transition. The Senate also moved closer to filling a very important housing policy position at the Department of Housing and Urban Development (HUD) when Federal Housing Administration (FHA) Commissioner Brian Montgomery was approved by the Senate Banking Committee to serve as HUD’s Deputy Secretary. Finally, FHFA and HUD increased loan limits for mortgages acquired by the GSEs and insured by the FHA, respectively.

  • Urban Institute releases an update to its MI chart book. On December 4, the Urban Institute published an updated analysis of the MI market, highlighting both the role that MI has played in enabling homeownership, as well as the protection private MI offers lenders, the GSEs, and taxpayers. The report, which included national and state-specific data, highlighted the borrowers currently being served by private MI, noting these borrowers tend to have higher credit scores and lower loan-to-value (LTV) and debt-to-income (DTI) ratios than FHA borrowers. The report highlights the important role private MI plays in helping to ensure low- to moderate-income and first-time homebuyers have access to the conventional market. It details that private MI is more affordable than FHA-back loans for the majority of combinations of FICO score and LTV ratios of 96.5, 95, 90, and 85 percent. The report also found that private MI borrowers tend to have lower credit scores, higher LTV and DTI ratios, and are more likely to be first-time homebuyers than conventional borrowers without private MI. Importantly, GSE loans with private MI have lower loss severities than non-private MI GSE loans, despite their higher LTV ratios. In other words, private MI is highly effective in allowing more qualified borrowers enter the mortgage market and achieve homeownership, while significantly reducing losses to the GSEs, which in turn reduces taxpayers’ risk.
  • FHFA’s Enterprise Capital Rule. In mid-November, FHFA announced its plans to re-propose the Enterprise Capital Rule in 2020. Director Mark Calabria remarked, “the Capital Rule is one of the most important rules I will issue as Director. This rule will be re-proposed and finalized within a timeline fully consistent with ending the conservatorships. Requiring the Enterprises to build capital that can properly support their risk ensures that taxpayers will never be on the hook again during an economic downturn.” Speaking at an event hosted by the Federalist Society on Tuesday, Director Calabria indicated that the FHFA is targeting Q1 of 2020 to re-propose the capital rule.

    Originally introduced in 2018, the process of retaining capital at the GSEs is viewed as a critical first step to end their conservatorships. When FHFA first announced the plan in 2018, USMI submitted a comment letter stating it “supports meaningful and appropriate capital requirements for Fannie Mae and Freddie Mac and appreciates the FHFA for initiating this rulemaking process.” USMI agrees the rule is one of the most significant rules to be issued in that it will determine the future role of the GSEs, how private capital will be able to continue to support the conventional market to protect taxpayers, and importantly, the level of access and affordability of mortgage finance credit for consumers. USMI supports the FHFA working to re-propose and finalize a capital rule for the GSEs that strikes an appropriate balance between borrowers’ access to affordable mortgage finance and creates robust and countercyclical capital requirements that creates a transparent and level playing field, and that better insulates the GSEs and taxpayers from mortgage credit risk
  • CAGW and NTU released analysis of the Trump Administration’s Housing Finance Reform Plans. CAGW and NTU’s recent report offers a compelling argument in favor of enacting meaningful reforms at the GSEs to strengthen the nation’s housing finance system, concluding that “without comprehensive reform, taxpayers are likely to bail out the GSEs again in the future.” After analyzing the Treasury Department’s Housing Finance Reform Plan, CAGW and NTU believe that GSE reform should be guided by the following principles: 1) creating a sustainable, cautious path to recapitalization and release that minimizes systemic risk; 2) protecting taxpayers through stringent capital backstops and liquidity requirements; and 3) restricting mission creep and promoting private-sector competition.

    Further, the report outlines several regulatory changes needed to facilitate the GSEs’ transition out of conservatorship including among other things that the Consumer Financial Protection Bureau (CFPB) should allow the current Qualified Mortgage (QM) Rule, known as the “GSE Patch,” to be replaced by transparent and consistent rules that apply across the industry. “Conservatorship was never meant to last forever,” the report concludes. By implementing these changes, the Trump Administration, Congress, FHFA, Treasury, and HUD have the opportunity to reshape the mortgage market and, ultimately, safeguard American taxpayers.
  • Senate Banking Committee advances Brian Montgomery’s nomination to serve as HUD Deputy Secretary. On December 11, FHA Commissioner Brian Montgomery was approved by a bipartisan vote of 20-5 in the U.S. Senate Committee on Banking, Housing and Urban Affairs to serve as HUD’s Deputy Secretary. His nomination will now move on to the Senate for final confirmation. In a statement issued on October 8, USMI applauded Montgomery’s nomination and commended him for his extensive background and experience that will allow him to immediately begin work on the most important issues facing the housing finance system.
  • FHFA and HUD increase loan limits for 2020. On November 26, FHFA announced the maximum conforming loan limits for mortgages acquired by the GSEs in 2020. The baseline limits for 2020 will be $510,400 and the high-cost area limit will be $765,600 – this represents an approximate 5 percent increase from the 2019 loan limits. These changes mean that the maximum conforming loan limit will be high in 2020 in all but 43 counties in the country. On December 3, the FHA announced the 2020 county loan limits for single-family mortgages the agency insures and issued a Mortgagee Letter outlining the “2020 Nationwide Forward Mortgage Limits.” FHA sets the loan limits for most counties at 115 percent of the country’s median home price and, for 2020, set the “floor” for low-cost areas at $331,760 (65 percent of the national conforming limit) and the “ceiling” for high-cost areas at $765,600 (150 percent of the national conforming limit) for one-unit properties.

Newsletter: November 2019

CONGRATS TO THE NATS! While the baseball season has officially ended, housing finance reform still has a few innings left in the game. On Monday, National Mortgage News reported on U.S. Mortgage Insurers’ (USMI) release of new details on the growing mortgage insurance credit risk transfer (MI CRT) market. USMI President Lindsey Johnson also spoke about innovative MI CRT on a panel at the Structured Finance Association’s (SFA) Residential Finance Symposium. On the housing finance reform front, Federal Housing Finance Agency (FHFA) Director Mark Calabria said that he is currently in negotiations with the Treasury Department to amend the Preferred Stock Purchase Agreements (PSPAs). He also spoke at an event hosted by the American Action Forum (AAF), where he was followed by a panel discussion on housing finance reform. Last week, FHFA released its 2019 Strategic Plan and 2020 Scorecard for Fannie Mae and Freddie Mac (“the GSEs”). This comes following several recent comments by Director Calabria reiterating the agency’s commitment to responsibly ending the GSEs’ conservatorships. In mid-October, Citizens Against Government Waste (CAGW) applauded the direction of FHFA under Director Calabria’s leadership. Lastly, we’re seeing more movement coming with the nomination of Brian Montgomery as Deputy Secretary of the Department of Housing and Urban Development (HUD) in early October.

Despite a busy month, there’s still plenty to look forward to at the #NEXTDC19 conference on November 18 and 19, which will bring policy experts together and create a great stage for lively discussions on the future of housing policy. Most importantly, ahead of the Veterans Day holiday, we want to thank and recognize all of the veterans who have bravely served in the United States Armed Forces. We are grateful for your service. 

USMI announces details on MI Credit Risk Transfer. On November 4, USMI announced that private MI companies transferred nearly $34 billion in risk on nearly $1.3 trillion of insurance-in-force from 2015 to 2019 to the global reinsurance and capital markets. USMI released details on the development and growth of the MI CRT market, which outlines the types of structures being used by the industry to transfer risk to reduce volatility and exposure of mortgage credit risk within the mortgage finance system, including to the GSEs, and therefore taxpayers. It also finds that active adoption of CRT by private mortgage insurers has transformed the industry to better insulate it from cyclical mortgage markets and enhanced MIs’ ability to be more stable, long-term managers and distributors of credit risk.

USMI President Lindsey Johnson spoke to MI CRT on a panel at the SFA’s Residential Finance Symposium. She also spoke with National Mortgage News on the innovative ways private MI is now actively managing mortgage credit risk. Johnson stated that in recent years mortgage insurers are not just participating in GSE CRT transactions, but also distributing their own risk through MI CRT.

AAF hosts panel discussion on housing finance reform. On November 6, AAF hosted a panel titled, “Fannie Mae and Freddie Mac: What’s Next?” Speakers included FHFA Director Mark Calabria; Dr. Norbert Michel, Director of the Center for Data Analysis at the Heritage Foundation; Dr. Michael Stegman, Senior Fellow of the Housing Finance Program at the Milken Institute Center for Financial Markets; and Thomas Wade, Director of Financial Services Policy at AAF. The panel was moderated by CNN’s senior economics writer, Donna Borak. The panel discussed the Treasury Department’s and HUD’s GSE Reform Plans, FHFA’s and Treasury’s actions to allow for the recapitalization of the GSEs, and additional reform initiatives by the Administration.

FHFA releases new Strategic Plan and Scorecard for Fannie Mae and Freddie Mac. On October 28, FHFA released its 2019 Strategic Plan and 2020 Scorecard, detailing the near-term future for the GSEs. In the Strategic Plan, FHFA provided a roadmap on how the GSEs will fulfill their statutory missions and maintain their focus on safety and soundness while preparing for what the FHFA calls “a responsible end to the conservatorships.” The 2020 Scorecard details how the GSEs will remain accountable for “the effective implementation of the Strategic Plan in the coming year.” Both documents outlined three key goals: (1) foster competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets that support sustainable homeownership and affordable rental housing; (2) operate in a safe and sound manner appropriate for entities in conservatorships; and (3) prepare for their eventual exit from conservatorships.

In FHFA’s press release, Director Calabria said, “Our nation’s mortgage finance system is in urgent need of reform. The vision for reform articulated in the Strategic Plan and advanced in the Scorecard will serve borrowers and renters by preserving mortgage credit availability, protect taxpayers by ensuring Fannie Mae and Freddie Mac can withstand an economic downturn, and support a strong and resilient secondary mortgage market.”

FHFA intensely focused on the GSEs exiting conservatorship. At a meeting with reporters on October 31, Director Calabria noted that he is not giving Fannie and Freddie an easy pass. “I’ll certainly say I have yet to meet anybody who wants to get out of conservatorship as much as Fannie and Freddie do. But certainly, what you’ve been seeing over the last few years is not the kind of day-to-day behavior that you would expect from companies that are in conservatorship.”

Earlier that week, Director Calabria gave a keynote speech at the Mortgage Bankers Association’s Annual Convention in Austin, TX, and explained that after just one quarter of capital retention where Fannie and Freddie profits weren’t swept to Treasury, the companies doubled their capital buffers. “Fannie and Freddie will move forward thoughtfully, but this does not mean moving slowly.” But as exiting the conservatorship moves closer, Director Calabria explained he will ensure that it is done right. “I will not end the conservatorship unless I am confident that once Fannie and Freddie leave, they will never have to return.”

CAGW applauds FHFA’s new leadership. On October 16, CAGW wrote that “Mark Calabria is moving FHFA in a new direction and making taxpayers his top priority.” CAGW provided several examples of Director Calabria’s work, including FHFA’s focus on building capital at the GSEs to protect taxpayers, revising the GSEs’ multifamily lending caps, and the termination of the GSEs’ Mortgage Servicing Rights (MSR) pilot program.  Regarding the MSR pilot, CAGW noted that FHFA should apply this logic to any other pilots that allow the GSEs to push into markets and engage in activities that are already thriving. It is promising that Director Calabria is reviewing all pilots and new activities that expand the GSEs’ market dominance and encourages the enterprises to expose taxpayers to additional risk.”

Nomination of Brian Montgomery as HUD Deputy Secretary. On October 8, HUD announced that Commissioner Montgomery had been nominated to serve as Deputy Secretary and the Senate Banking Committee will consider his nomination on November 20. Montgomery, who also serves as HUD’s Assistant Secretary for Housing and Federal Housing Commissioner, would manage the day-to-day operations of the agency and assist Secretary Carson in leading the department’s nearly 8,000 employees. USMI applauded the decision, noting “Commissioner Montgomery is a respected, seasoned mortgage finance expert, and his unique experience and past public service have been major assets to the FHA. His extensive background will allow him to immediately begin work on the most important issues facing the housing finance system.”

Upcoming events. The#NEXTDC19 conference is an event focused on delivering policy intel. On November 18 and 19, it will bring together the most influential housing policy leaders, mortgage lenders, and fintech firms.