Newsletter: February 2022
February 25, 2022
Though Spring is nearing, DC is still dealing with winter’s cold. We also see some things heating up with recent developments in housing finance. Notably, bipartisan, bicameral legislation was introduced to make permanent and expand the federal tax deduction for mortgage insurance (MI) premiums. Several key nominees, including Federal Reserve nominees and Sandra Thompson for Director of the Federal Housing Finance Agency (FHFA), went before the Senate Banking Committee. USMI President Lindsey Johnson published an op-ed examining ways to decrease racial gaps in homeownership. USMI’s latest blog explores the current state of housing-related legislation, and it was recently published on USMI’s new website. We dive into all this and more below.
Check out our new and improved website! Learn more about the issues we advocate for and how private MI plays a critical role in the housing finance system.
The Hill published an opinion piece by USMI President Lindsey Johnson that examines key areas the industry and policymakers need to focus on to decrease racial gaps in homeownership. Johnson writes, “The issues facing minority and other underserved borrowers are complex, multi-faceted, and vary by geography. Addressing them means being very specific about identifying the borrowers being served, their specific issues, and target outcomes. Further, there should be consistency in how the government and GSEs approach initiatives related to access to home financing. These initiatives should aim to increase sustainable access to credit for borrowers that need assistance the most, while also reducing credit risk. Whether it’s FHA or FHFA, policies should also aim to not stoke additional demand into the marketplace, further driving up prices, which acutely impacts low- and moderate-income borrowers.” Johnson also highlights three specific areas that the housing industry and policymakers should focus on including: “1) affordable housing production; 2) financial and homeownership education and outreach; and 3) a holistic review of GSE pricing, including re-examining 2008-era Loan-level price adjustments (LLPAs), which disproportionately impact minority borrowers.” Read the full column here.
We also updated our “Policy Priorities for Access, Affordability & Sustainability in the U.S. Housing Finance System.” USMI strongly supports enabling homeownership for all mortgage-ready borrowers, including historically underserved households. We support efforts to remove barriers to homeownership and increase access to affordable and sustainable mortgage credit. In our updated policy priorities, we share specific recommendations we believe can meaningfully enhance access, affordability, and sustainability for more borrowers. To support homebuyers and promote a strong housing finance system, it is critical for stakeholders to have greater access to underwriting, risk management, valuation technologies, and loan performance data. For equitable homeownership initiatives to be successful, they must be collaborative and transparent.
USMI’s Senior Director of Government Relations Brendan Kihn examines the state of housing finance legislation in the 117th Congress, discussing various bills Congress has put forward since the start of the Biden Administration to expand access to mortgage finance for first-time and minority borrowers. With the Build Back Better Act (BBB) currently stalled, Kihn notes that “[h]ousing advocates remain adamant that housing investments should be included in any legislative packages that seek to advance” the Biden Administration’s BBB agenda. Kihn also notes recent bipartisan, bicameral efforts to ensure millions of homeowners continue to benefit from the MI tax deduction. Lastly, he highlights the building pressure around the White House and congressional Democrats’ internal negotiations to determine what housing policies, if any, can be passed before voters head to the polls in November. Read the full blog here.
Today, FHFA released its final rule on the ERCF – Prescribed Leverage Buffer Amount (PLBA) and Credit Risk Transfer (CRT). In the final rule, FHFA notes that it “…is adopting, substantially as proposed, amendments to the leverage buffer and risk-based capital treatment of CRT exposures.” The final rule makes a number of changes to the previous final rule released on December 17, 2020, including:
- Replacing the fixed leverage buffer equal to 1.5 percent of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50 percent of the Enterprise’s stability capital buffer.
- Replacing the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure.
- Removing the requirement that an Enterprise must apply an overall effectiveness adjustment to its retained CRT exposures.
In our comments on the proposed changes to the ERCF, USMI supported the direction of the proposed changes to the PLBA and CRT, and made specific recommendations for FHFA to consider additional changes.
On February 9, the FHFA put out a request for input (RFI) on its Strategic Plan for Fiscal Years 2022-2026. FHFA outlined three strategic goals for the period, with the third mainly focused on how FHFA will manage its own workforce. Comments to the RFI are due on March 11.
The first strategic goal is to “secure the regulated entities’ safety and soundness,” which would in part, require the GSEs to update their pricing frameworks with an eye towards improving safety and soundness while “providing enhanced support for core mission borrowers.” In addition, this strategic goal would require that FHFA begin considering climate change concerns when making governance decisions.
The second strategic goal focuses on “foster[ing] housing finance markets that promote equitable access to affordable and sustainable housing,” which would include oversight of GSE implementation of FHFA’s equitable housing finance plans, particularly as to whether they have taken concrete steps (“meaningful actions”) to successfully achieve those plans’ objectives.
In January, USMI sat down with National MI’s Founder and Executive Chairman Brad Shuster to discuss what the housing finance industry should focus on to ensure access for first-time homebuyers as home prices continue to rise and demand remains robust. He also talks about the findings of the 2021 NextGen Homebuyer Report, how demographic changes are shaping the mortgage industry, and how to best serve the diverse borrowers of tomorrow. Read the full spotlight here.
On February 7, Senators Maggie Hassan (D-NH) and Roy Blunt (R-MO) introduced the “Middle Class Mortgage Insurance Premium Act of 2022,” a bill that would make the MI premium tax deduction permanent and expand homeowner eligibility. A similar bill was introduced in the House in December by Representatives Ron Kind (D-WI) and Vern Buchanan (R-FL). USMI has long advocated for making this deduction permanent as it benefits millions of middle class homeowners and is a clear commitment to helping borrowers with low down payments who are often first-time homebuyers. We are encouraged by the introduction of this legislation and urge its swift passage.
A Law360 article reported on the legislative efforts to restore the federal tax deduction for MI premiums. USMI President Lindsey Johnson is quoted as saying that “With [the] expiration [of the MI tax deduction], millions of hard-working, middle-class homeowners wouldn’t have access to this benefit that puts money back in the pockets of those who need it the most, at a time when inflation is raising the cost of virtually all goods and home price escalation continues.” Read the full article here (subscription may be required).
President Biden formally nominated Sandra Thompson to serve as Director of the FHFA and she testified before the Senate Committee on Banking, Housing, and Urban affairs on January 13. In her testimony, Thompson stressed balance between expanding access to credit with safety and soundness, saying “broad, fair access and the stability of financial institutions work together as pillars of the nation’s housing finance system.” Read our full statement on her nomination here.