Newsletter: June 2022
June 3, 2022
June is here, and that means it’s National Homeownership Month! USMI released its annual report on mortgage financing supported by the private mortgage insurance (MI) industry at the national and state levels. The report found that the industry supported over 37 million low down payment borrowers in its 65-year history, and revealed that Texas, California, Florida, Illinois, and Ohio were the top five states for mortgage financing with private MI in 2021. Also, USMI announced the latest MI-CRT data, which highlights the number and amount of mortgage credit risk that private mortgage insurers aggregated and distributed into the global reinsurance and capital markets through 2021. Read more about these topics and other developments below.
On June 1, USMI released its annual MI in Your State report on mortgage financing supported by private MI at the national and state levels. The report found that the industry has helped more than 37 million low down payment borrowers over its 65-year history to secure mortgage financing, including nearly 2 million in 2021. The report also found that saving for a 20% down payment could take a typical homebuyer 14 years to save versus only 5 years to save 5% down — a 64% shorter wait time at the national level. Texas, California, Florida, Illinois, and Ohio were the top five states for mortgage financing with private MI. The full report and fact sheets for all 50 states, plus D.C., are available here.
The report highlights how private MI helps to level the homebuying playing field, which USMI also highlighted in an April blog post. In the report, USMI writes, “Many wrongly believe you need a significant down payment to secure home financing. USMI’s [2021 National Homeownership Market] survey found that 45% of respondents mistakenly believe that 20% or more is needed to qualify for a mortgage. However, after MI was explained to them, 73% expressed strong support for access to mortgages with MI in both the conventional and government backed markets. Data finds the typical down payment for first-time buyers has ranged between 6% and 7% since 2018, according to a [National Association of REALTORs®] survey.”
Last month, USMI discussed MI-CRT with National MI President and CEO Adam Pollitzer. In the interview, Pollitzer explained that “MI-CRT is central to how the private MI industry manages credit risk. The tools we use—insurance-linked notes offerings, excess of loss reinsurance treaties, and quota share reinsurance agreements—each serve to absorb risk and loss in stress scenarios. CRT enhances our counterparties’ strength, bolsters and diversifies our funding profile beyond entity-based equity capital, and allows us to write more business and support more borrowers with greater efficiency. Every dollar of risk transferred through CRT opens another dollar of mortgage volume that we can support for new borrowers.”
On May 23, USMI announced the industry has transferred over $55 billion in risk on nearly $2.8 trillion of insurance-in-force (IIF) from 2015 through 2021. The industry’s use of MI credit risk transfer (MI-CRT) reduced volatility in the business, brought more sources of private capital to the housing finance market, and allowed the industry to scale up operations to meet record demand and originations over the past several years. “While some housing market participants either paused or reduced their CRT activities during the past two challenging years, the private MI industry continued to execute CRT transactions,” said USMI President Lindsey Johnson.
On April 21, USMI announced the industry helped nearly 2 million low down payment borrowers secure mortgage financing and supported nearly $585 billion in mortgage originations in 2021. More than 80% of this volume by loan count was for new purchases, while approximately 20% was for refinance loans. This resulted in nearly $1.4 trillion in outstanding mortgages with active private MI coverage at year’s end, underscoring the industry’s critical role serving as the first layer of protection against credit risk in the conventional mortgage market backed by the GSEs.
As home prices across the country continue to escalate, more and more borrowers, particularly first-time homebuyers, rely on low down payment mortgages to get into a home sooner. The private MI continues to be the sustainable low down payment that supports the majority of borrowers, serving more than 43% of the insured market, compared to VA that insured just over 30% and FHA that served nearly 25% of the low down payment market. When borrowers have access to competitive low down payment loans through private MI, it means more lenders compete for their business, their mortgage insurance can be cancelled, and their loan is backed by private capital, not the federal government. See Private MI By the Numbers for more information.
While the Federal Reserve ordered the largest interest rate hike in more than two decades to combat inflation, the Federal Housing Administration (FHA) is considering changes to its mortgage insurance premium (MIP) framework, including pricing reductions. On its website, USMI explains that “reducing premiums will only inject more demand into a maxed out housing market. Instead of cooling the market, the change will push more borrowers into the market and push home prices even higher. And, because of the segment of the market that the FHA primarily serves, this will disproportionately and negatively impact first-time, minority, and low- to moderate-income borrowers.”
USMI also highlights that the chief problem experienced by low down payment borrowers isn’t the cost of MI. In fact, according to Fannie Mae, private MI ranks among the lowest costs associated with homeownership. According to Freddie Mac, “the main driver to the housing shortage is the decline in construction of entry-level, single family homes.” This issue of the lack of affordable housing supply is an issue that USMI continues to highlight as the number one issue facing prospective homebuyers. If there isn’t enough housing supply in the market today, then reducing the cost of an FHA mortgage will only make things more competitive and reduce supply in the market tomorrow.”
On May 12, USMI released a statement welcoming the Senate confirmation of Julia Gordon to serve as Assistant Secretary for Housing and Federal Housing Commissioner with the Department of Housing and Urban Development (HUD). USMI President Lindsey Johnson said, “In Commissioner Gordon, America gains an accomplished leader with broad experience in the housing finance system, who has specialized in supporting affordable homeownership and consumer protection policies for underserved markets.”
On May 25, USMI released a statement congratulating the Senate’s bipartisan confirmation of Sandra Thompson to serve as Director of the Federal Housing Finance Agency (FHFA). Johnson said, “Thompson has been serving as the agency’s Acting Director since June 2021 and understands the importance of ensuring the safety and soundness of the GSEs, Fannie Mae and Freddie Mac, and the housing finance system.”
This week, HousingWire announced USMI’s Senior Director of Government Relations as one of its 2022 Rising Stars. The program recognizes industry professionals who have become leaders in their respective fields, and highlights Brendan’s work advocating for first-time and minority homebuyers who are seeking to reach the dream of homeownership as demonstrating his leadership in the housing finance system.
On May 3, USMI announced that USMI President Lindsey Johnson will be leaving the organization in early June to serve as the next President and CEO of the Consumer Bankers Association (CBA). Upon her departure announcement Johnson said, “Our member companies have enabled more than 10 million households to become homeowners during my tenure as USMI president. Leading USMI has been a true professional privilege and I will always appreciate being a small part of the incredible role that the private mortgage insurance industry plays in creating sustainable homeownership for so many people.”
On June 2, USMI announced that Essent executive Adolfo Marzol will serve as the association’s new Chairman of the Board. He succeeds Derek Brummer, President of Mortgage at Radian Group. “As USMI Chairman, I look forward to working with my industry colleagues and the dedicated team at USMI to ensure the industry continues to be a source of strength in the housing finance system and allows borrowers to succeed as sustainable homeowners for the long term,” said Marzol.
Today, The Wall Street Journal’s Editorial Board published a column about the Biden Administration’s idea to cut FHA mortgage insurance premiums and how such a move would benefit realtors not homebuyers. They write, “Cutting FHA premiums would increase the risk for taxpayers who would have to cover mortgage losses if the agency can’t. The idea is also likely to boomerang. An AEI study found that a 50 basis-point cut in FHA’s annual premiums in 2015 had the effect of reducing monthly payments by the same amount as a three-quarter percentage point drop in the mortgage rate. This increased the purchasing power of FHA buyers but also increased prices in neighborhoods with more FHA loans.”