Newsletter: June 2023
June 23, 2023
Summer is here, and so are major updates for the housing finance industry as we celebrate National Homeownership Month! Recently, U.S. Mortgage Insurers (USMI) Chairman Adolfo Marzol sat down with USMI President Seth Appleton to discuss the performance of the private mortgage insurance (MI) industry in 2022, as the association released its latest volume and credit risk transfer (CRT) data. This data highlights the number of homeowners helped by private MI in 2022 and the amount of mortgage credit risk that private MIs transferred to the global reinsurance and capital markets. In addition, USMI announced that Christina Brown joined the association as Vice President and Senior Counsel, while Brendan Kihn was promoted to Vice President of Government Relations. Read about these topics and more below.
Last month USMI’s President Seth Appleton discussed the private MI market with USMI Chairman Adolfo Marzol. In the interview, Marzol noted that “the MI industry has continued to be a source of financial strength in the markets, providing uninterrupted access to mortgage credit without any special interventions or actions during the sudden heightened stress we have been witnessing in other sectors of financial services. The same was true during the extraordinary financial stress that hit during the onset of COVID. MI remained available and affordable at all times.” Inside Mortgage Finance covered the interview in this article.
From 2015 through 2022, the private MI industry issued 51 insurance-linked notes to obtain reinsurance through the capital markets, transferring more than $20.8 billion of risk exposure on nearly $2.2 trillion of notional mortgages and completed 42 quota-share and excess of loss reinsurance transactions, ceding $47 billion of additional risk to the traditional reinsurance market. In total, nearly $68 billion of risk has been transferred since 2015, providing the private MI industry additional capacity to support new borrowers. At the end of 2022, the private MI industry held nearly $11 billion of eligible assets in excess of the government-sponsored enterprises’ (GSEs) Private Mortgage Insurer Eligibility Requirements (PMIERs) capital requirements, which represented a 172% sufficiency ratio. This furthered the private MI industry’s ability to support lenders and borrowers over the past year.
On May 25, USMI published a press release announcing that the industry helped over 1 million low down payment borrowers secure mortgage financing in 2022, according to data from the GSEs, representing nearly $402 billion in new originations. Approximately 97% of these mortgages were new purchases and first-time homebuyers represented nearly 62% of purchasers with private MI. This resulted in over $1.5 trillion in outstanding mortgages with active private MI coverage at the end of 2022, underscoring the industry’s critical role in serving as the first layer of protection against credit risk in the GSE-backed conventional mortgage market.
In 2022, the private MI market also served a large number of low- to moderate-income borrowers. Nearly 35% of those that purchased or refinanced a mortgage with private MI had annual incomes below $75,000, and the average loan amount with MI was approximately $341,716, according to GSE and HMDA data. The MI industry has enabled approximately 38 million people to access affordable, low down payment mortgages in its 66-year history. See Private MI By the Numbers for more information.
On May 23, USMI announced that Christina Brown joined USMI as Vice President and Senior Counsel for the association. Prior to joining USMI, Brown worked in a senior legal role at a mid-size independent mortgage bank and on regulatory and policy matters related to residential mortgage lending and servicing for a large depository institution. Brown previously served as Acting Principal Deputy General Counsel at the U.S. Department of Housing and Urban Development (HUD). In addition, Brendan Kihn was promoted to Vice President of Government Relations.
On June 13, U.S. Senators Maggie Hassan (D-NH) and Thom Tillis (R-NC) reintroduced The Middle Class Mortgage Insurance Premium Act (S. 1938), with Senator Hassan saying, “[t]his bipartisan bill would cut taxes for middle-class families, helping them to buy a house and afford their mortgage.” USMI President Seth Appleton stated, “[w]e thank [the sponsors] for reintroducing legislation that will make permanent and enhance the ability of middle class homeowners to deduct private and government MI premiums on their individual federal income tax returns. This targeted tax cut helps make homeownership more affordable, which is especially important in today’s low inventory, higher interest rate housing market.” National Mortgage News and DS News covered USMI’s statement.
The Middle Class Mortgage Insurance Premium Act of 2023 is bicameral, with U.S. Representatives Vern Buchanan (R-FL) and Jimmy Panetta (D-CA) leading on this critical issue in the U.S. House of Representatives. Data through tax year 2020 shows that an average of 3.3 million homeowners have claimed the deduction annually and received an average deduction of $1,427. In aggregate, homeowners claimed more than $61 billion in MI premium deductions between 2007 and 2020.
On May 10, the Federal Housing Finance Agency (FHFA) announced it had rescinded the upfront fees based on borrowers’ debt-to-income (DTI) for loans acquired by the GSEs, Fannie Mae and Freddie Mac. National Mortgage News covered the development noting USMI’s perspective that “[w]ith the strong underwriting standards and prudent risk management in today’s housing finance system, LLPAs should appropriately recognize the critical protection against credit loss that private MI provides to lenders, the GSEs, and taxpayers.” In the course of its holistic review of GSE pricing, USMI previously applauded FHFA and Director Sandra Thompson for taking a measured and prudent approach to identifying areas where upfront costs could be adjusted, and for many reduced, while maintaining a commitment to strong risk management. USMI looks forward to submitting a response to the FHFA’s request for input on “Fannie Mae and Freddie Mac Single-Family Mortgage Pricing Framework” and providing recommendations to best calibrate GSE pricing.
On May 23, the U.S. House Financial Services Committee held a hearing titled, “FHFA Oversight: Protecting Homeowners and Taxpayers,” in which FHFA Director Thompson testified. During the hearing, Director Thompson noted on several occasions how private MI deploys capital to enable access to affordable and sustainable homeownership for low down payment borrowers while providing critical credit risk protection to the GSEs and taxpayers. In a response to a question from Representative Ann Wagner (R-MO) regarding mortgage credit risk amidst an economy at risk of recession, Director Thompson stated, “this is one of the reasons the enterprises require [MI], because if there is a default the [MI] steps in front of and has the first loss position and protects the enterprises and limits the enterprises loss and as we said any loan that has less than 20% down is required by law to have credit enhancement.” Further describing the role and strength of the private MI industry, in response to a question from Representative Mike Lawler (R-NY) regarding FHFA’s decision to eliminate LLPAs on certain borrowers, including first-time homebuyers, Director Thompson highlighted that “the [MI] companies are capitalized, they’ve got liquidity and, at the end of the day, they’re transferring the first loss credit risk to the private sector, which helps protect the enterprises.”
On May 15, USMI joined a coalition of housing finance organizations including the American Bankers Association (ABA), Housing Policy Council (HPC), and the Independent Community Bankers of America (ICBA) in responding to one element of FHFA’s Notice of Proposed Rulemaking (NPR) on enhancements to the ERCF. The organizations raised concerns regarding the method of calculating a borrower’s representative credit score once the GSEs migrate to the bi-merge credit report requirements. The coalition recommends that loan-level GSE data from 1999 forward should be published sooner than 4Q 2023 to allow for the necessary analysis and impact assessment ahead of the proposed implementation in 1Q 2024. In addition, the organizations call for FHFA to work more closely with industry stakeholders to fully assess operational and regulatory compliance considerations for mortgage market participants, including for the notices and disclosures required under the Fair Credit Reporting Act (FCRA).
On May 31, USMI submitted supplemental comments and recommendations to Fannie Mae and Freddie Mac’s Credit Score Industry Engagement Survey to work towards facilitating a smooth transition to new credit score requirements while maintaining borrower access to mortgage financing and promoting robust risk management. USMI specifically requested: (1) adjustments to the implementation timeline; (2) robust stakeholder engagement; (3) earlier access to historical data; (4) further details on the impact to capital reporting and planning under PMIERs; and (5) clarity on consumer notifications under the FCRA.
On June 22, USMI joined 16 other industry trade associations and consumer advocate groups in sending a letter to the FHFA urging: (1) robust data transparency; (2) a comprehensive, transparent, and iterative stakeholder engagement process; and (3) a recalibrated timeline to accommodate data analysis, modeling, and stakeholder feedback.
Recently, Monica Hogan at Inside Mortgage Finance published an article titled, “FHA, PMI Serve Different Market Needs.” The article mentioned USMI’s 2021 National Homeownership Market Survey which notes that “accumulating enough money for a downpayment remains the top impediment to homeownership.” The piece also highlights that “[f]irst-time homebuyers who relied on private MI in 2020 and 2021, when mortgage rates were historically low, have gained from the historic home price appreciation, which they wouldn’t have had if they’d waited to save for a 20% downpayment.”
Additionally, in another Inside Mortgage Finance piece by Hogan titled, “New Rocket Loan Offers Downpayment, PMI Assistance,” USMI President Seth Appleton is quoted saying, “[p]rograms like this one underscore the critical role that private mortgage insurance plays to help prospective homebuyers without large downpayments become homeowners during a high-interest rate and low-inventory housing market,” adding that “[o]ne attractive feature of private MI is the number of tailored options it provides to meet borrowers’ specific needs, including lender-paid MI, which this program leverages to provide low- to moderate income households with access to affordable mortgage credit through the conventional market.”
On June 14, USMI President Seth Appleton appeared on HousingWire Daily podcast with HousingWire’s Editor in Chief Sarah Wheeler. In the episode titled, “Seth Appleton on solving affordability challenges for first-time buyers,” Appleton and Wheeler discuss how private MI benefits first-time, low- to moderate-income, and minority homebuyers, what policy changes could benefit consumers while protecting the housing finance system, and much more. Click here to listen to the full episode.