Reducing taxpayer exposure by aggregating, managing, and distributing mortgage credit risk
More needs to be done to put our housing finance system on a more sustainable footing, with the private sector – not taxpayers – bearing a greater share of the risks of future housing downturns. MI reduces taxpayer exposure by reliably transferring a substantial portion of mortgage credit risk away from the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
Mortgage insurers have a long history of consistently offering MI even during significant market downturns. This makes MI very different from capital markets structures, which disappeared during the 2008 financial crisis and have not since returned in any meaningful volume. In addition to reducing loss severity on MI-covered loans, mortgage insurers provide protection to the housing finance system by aggregating, managing, and distributing mortgage credit risk.
Serving as the first layer of protection ahead of taxpayers
As an industry that is fully committed to the U.S. housing finance system, and one that has never stopped writing new business, insuring loans or paying claims, private mortgage insurers are an important source of private capital. Mortgage insurers are stronger and more resilient than ever, with well-capitalized balance sheets and the capacity to serve all borrowers who don’t have 20 percent down to purchase a home.
Mortgage insurers are reliable due to a new Master Policy that provides enhanced contractual certainty on how and when mortgage insurers pay claims. Mortgage insurers have also increased their ability to pay claims due to new higher capital standards mandated under the Private Mortgage Insurer Eligibility Requirements (PMIERs), issued by the GSEs.
Another key development over the past several years has been the industry’s programmatic use of credit risk transfer (CRT) disperse mortgage credit risk to the global capital and reinsurance markets. As of December 2021, private mortgage insurers have collectively transferred nearly $54 billion in risk on more than $2.6 trillion of insurance-in-force (IIF) through both reinsurance transactions and insurance-linked notes (ILNs).