Newsletter: November 2017

As the Thanksgiving holiday nears, there has been a cornucopia of news in housing finance. Here is a roundup of recent news to ensure you stay up-to-date on the latest happenings. In a yearly ritual like the Macy’s Day Parade, the Federal Housing Administration (FHA) released its annual report to Congress highlighting the health of its Mutual Mortgage Insurance Fund (MMIF). In the days leading up to the release of the report, the Heritage Foundation wrote a blog post in opposition to terminating the FHA’s life of loan policy in collecting mortgage insurance premiums (MIP), which a number of groups have sought in recent months. Tax reform has gobbled up much of the news over the past few weeks, and this week the House of Representatives passed its tax reform bill. Finally, just like the abundant feasts of Thanksgiving, the House Financial Services Committee’s (HFSC) Housing and Insurance Subcommittee held Part III of its “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform” hearing series).

  • FHA Releases 2017 Annual Report to Congress. The FHA released its annual report to Congress on the health of its MMIF for 2017 – an important measurement of the FHA’s fiscal strength in the housing finance market. According to the report, the MMIF stands at 2.09 percent, down from 2.35 percent last year and just slightly above the statutory requirement of 2 percent. The report also found that the FHA insures more than $1.2 trillion in mortgage credit risk – an increase from its 2016 annual report. DSNews reported that U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson is ensuring the public that HUD is working to better the fiscal health of the FHA. Secretary Carson said, “The fiscal health of FHA demands our constant attention and vigilance to ensure we can continue providing sustainable homeownership opportunities to working families without exposing taxpayers to excessive risk. Our duty is clear—we must make certain FHA remains financially viable so future generations can build wealth and climb the economic ladder of success.” In a statement on the FHA’s annual report to Congress, USMI President and Executive Director Lindsey Johnson said: “The FHA has taken important steps in recent years to improve its financial stability after requiring a $1.7 billion government bailout in 2013 when the agency did not have the necessary capital to cover losses, though more needs to be done. With more than $1.2 trillion in mortgage credit risk, the FHA must enhance its financial strength to continue to serve the borrowers who need it the most… Now is the time for the FHA to refocus on its core mission, scaling back from the oversized role it played during the recession so that it can return to serving low-to-moderate income individuals who need the FHA’s 100-percent government backed loans the most.”
  • House of Representatives Passes Tax Reform Legislation. Yesterday, the House of Representatives voted 227 to 205 to pass R. 1, the “Tax Cuts and Jobs Act.” Among many other provisions included in the tax plan, the bill reduces the mortgage interest deduction from $1 million to $500,000 and caps the deduction for property taxes at $10,000. The U.S. Senate will soon vote on its own tax proposal and, if it passes, will go to conference with the House to negotiate a final bill through reconciliation. To read more about USMI’s views on the House’s tax reform bill, please click here.
  • Housing and Insurance Subcommittee Holds Housing Finance Reform Hearing—Part III. A HFSC subcommittee received testimony from representatives of the Milken Institute, American Enterprise Institute (AEI), Moody’s Analytics, Cardiff Consulting Services, and the Urban Institute for housing finance reform. Importantly, former Ginnie Mae President and current Milken Institute Senior Fellow Ted Tozer called for a balanced deployment of government and private capital in support of a fairer and more efficient housing finance system, and also called for the overall reduction of the government footprint as more private capital re-enters the system at different points in the primary and secondary mortgage markets. Tozer’s remarks echo what other housing experts have said about private capital in the housing finance system, which reduces mortgage credit risk to U.S. taxpayers and the federal government.
  • Heritage Foundation Opposes Terminating FHA Life of Loan Premium Coverage. In a recent article, Heritage Foundation scholars John Ligon and Norbert Michel spoke out against terminating FHA MIP, saying that “these changes would be unfair to federal taxpayers that subsidize the cost of the Federal Housing Administration’s insurance program.” The authors specifically mention a recent bill introduced in the House of Representatives that would eliminate the FHA’s current life of loan policy. The authors also urged neither Congress nor the FHA to make any policy changes that would weaken the agency’s ability to cover insurance losses. USMI also opposes reducing FHA’s premium or cancelling FHA’s premiums collected for the life of the loan, because the 100-percent government-backed FHA will continue to hold the same amount of mortgage credit risk while collecting less in insurance premiums, thereby putting taxpayers and the federal government at increased risk. In fact, according to the findings in the FHA’s 2017 annual report to Congress, if the FHA had reduced insurance premiums as planned in January, the MMIF would be at 1.76 percent and undercapitalized. 

Statement: Nomination Hearing of Brian Montgomery for FHA Commissioner

WASHINGTON Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate Committee on Banking, Housing, & Urban Affairs’ hearing on the nomination of Brian Montgomery for Federal Housing Administration (FHA) Commissioner:

“Brian Montgomery is a respected expert and seasoned mortgage finance professional who our industry supports to serve once again as FHA Commissioner. While serving in the President George W. Bush administration, Mr. Montgomery led the FHA when the agency expanded as part of its countercyclical role during the financial crisis – a time of unprecedented market stress. As such, Brian Montgomery has the historic experience and expertise to oversee and manage the FHA’s return to its smaller, appropriate, and intended role in the market focusing on those borrowers who need the FHA’s 100% taxpayer-backed loans the most. The conventional mortgage market today is healthy and continues to prudently serve creditworthy homebuyers, including those with low down payments.

“The FHA serves an incredibly important role for many low-to-moderate income borrowers. We are confident that as FHA Commissioner, Brian Montgomery will continue to be a champion for a robust housing finance system that strikes the appropriate balance between the conventional market backed by private capital and government-backed FHA loans. We agree with Mr. Montgomery’s previously expressed views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government, and it is encouraging to know that he believes the FHA ‘should never take the place of the private sector first-loss solution provided by private mortgage insurers.’

“While the FHA serves a very important function in the housing finance system, its footprint has expanded dramatically since the financial crisis. Now is the time to focus on ensuring that the FHA is not overexposing taxpayers to undue risk and refocus the agency on its core mission of serving borrowers who need 100% government-backed home loans. We look forward to working closely with Brian Montgomery in seeking ways to establish a more collaborative, coordinated, and consistent housing policy and to help expand private capital’s role in shouldering more risk in front of taxpayers in the housing market. For 60 years private mortgage insurance has played a leading role in promoting affordable and sustainable homeownership and we look forward to building upon our success in the future.”


U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at

Blog: How to lower your monthly mortgage payment

Owning your own home comes with many advantages, including escaping rising rents and the personal and financial stability associated with homeownership. Fortunately, millions of Americans, with less than 20 percent down, have been able to buy a home sooner thanks to mortgage insurance (MI). If you don’t put down 20 percent of the mortgage cost, you will likely be required to purchase MI, which enables low-down-payment borrowers to qualify for home financing from lenders.

While homeownership has many benefits and continues to be part of the American Dream, it is not without costs. Several surveys have found that the majority of first-time homebuyers — over 80 percent according to one study — put less than 20 percent down. For these borrowers, there is usually the added expense of MI, which may give some of these borrowers pause.

But there is good news: the monthly private mortgage insurance premiums do not last forever on most conventional loans. And when private MI (PMI) cancels, homeowners will have more cash in their pockets each month — money that is available for home improvements or other goals. It is important to understand, however, that not all MI is the same, and not all MI can be canceled.

There are numerous low-down-payment mortgage options available that include MI. The two most common are: (1) home loans backed 100 percent by the government through the Federal Housing Administration (FHA) that include both an upfront and annual mortgage insurance premium (MIP); and (2) conventional loans, which are typically backed at least in part by private sources of capital, such as private MI. The key difference is that one form can be canceled (PMI) while the other (FHA) typically cannot be canceled.

An FHA loan can be obtained with a down payment as low as 3.5 percent. However, be aware that you will typically have to pay a mortgage insurance premium (MIP) of 1.75 percent of the total loan amount at closing or have it financed into the mortgage. In addition to your regular monthly mortgage payments on your FHA loan, you will also pay a fixed monthly MIP fee for the life of the loan. This means you could pay hundreds of dollars extra every month — thousands over the life of the loan — until you pay off the entirety of the loan.

If you obtain a conventional loan with PMI, you can put as little as 3 percent down. Like an FHA loan, PMI fees are generally factored into your monthly mortgage payment. However, PMI can often be canceled once you have established 20 percent equity in the home and/or the principal balance of the mortgage is scheduled to reach 78 percent of the home’s original value. This means that the rest of your mortgage payments will not include any extra fees, so that your payments go down in time, saving you money each month. What you save in the long run can then be put toward expenses like home renovations, which can further increase your home’s value.

MI is a good thing because it bridges the divide between a low down payment and mortgage approval. But not all MI is created equal. If you want to buy a home but still save in the long run, PMI might be the right option for you. Check out to learn more.

Statement: Requests to Reduce FHA Mortgage Insurance Premiums

USMI Logo 60th Anniversary

Screen Shot 2017-04-20 at 1.20.41 PM

USMI Statement on Requests to Reduce FHA Mortgage Insurance Premiums

WASHINGTON  Over the last couple of weeks, there have been requests, including from some trade organizations and Democratic members of Congress for the U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson to reinstate a cut scheduled under the Obama Administration to the Federal Housing Administration (FHA) mortgage insurance premiums (MIP). The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“Helping creditworthy homebuyers qualify for mortgage financing despite a low-down payment is good policy. It is precisely why conventional loans with private mortgage insurance (MI) and the government-backed FHA loans exist. However, reducing FHA premiums is neither necessary nor prudent at this time. Credit remains available for these borrowers in the conventional market, where the risk is backed by private capital, such as MI. A FHA premium reduction will only draw borrowers served in this market over to the FHA, where the risk is 100 percent backed by the government and taxpayers.

“The FHA has and continues to serve an important role in the housing finance system. While the financial health of the FHA has improved since the financial crisis, it is by no means in a position to have the fees it charges for the insurance it provides reduced. Taxpayers are currently exposed to more than $1 trillion in mortgage risk outstanding at the FHA. This would only increase if FHA premiums were reduced.

“Rather than reduce premiums, the FHA should continue to make the needed improvements to its financial health. Policymakers should also work to establish a more coordinated and transparent housing policy that will promote increased access to low down payment lending while at the same time decreasing the federal government’s role in housing, such as reducing or eliminating the GSEs’ loan level price adjustments (LLPAs)—a more effective and prudent means for improving access to mortgage finance credit. Further, we strongly urge against any change to FHA’s life of loan coverage. Unlike private MI, which is cancellable, FHA’s insurance coverage does not go away—thus, taxpayers are on the hook for FHA-insured mortgages for the entire life of the loan.

“Private capital can and should play a leading role in insuring low down payment mortgages so the government and taxpayers are protected from mortgage credit risk. Past FHA commissioners strongly agree with this sentiment. For over 60 years, private MI has been a time-tested and reliable way for Americans to become homeowners sooner—with more than 25 million borrowers helped to date. USMI looks forward to working with all interested parties in Congress and the housing market to ensure we create a housing finance system that protects taxpayers while also promoting homeownership throughout the country.”


U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at

Newsletter: March 2017

Here is a roundup of recent news in the housing finance industry, including a blog post by USMI Chairman Patrick Sinks on the value of enhanced lending standards and practices, the release of a new column explaining low down payment mortgage options, a report on the Federal Housing Administration’s (FHA) exposure to risky loans, and the Federal Housing Finance Agency’s (FHFA) response to criticism over the GSEs’ entrance into financing single-family rental homes:

  • USMI Chairman Writes on Lending Standards. In a recent blog post by Patrick Sinks, the President and CEO of MGIC and Chairman of USMI, he argues that the federal government must balance important protections provided by new lending standards with reasonable consumer access to credit. Sinks also says that there must be uniform lending standards in the housing finance industry to promote consistency in the market. Sinks writes:“The safeguards that came into the marketplace for borrowers, lenders, investors, and ultimately taxpayers with the implementation of the QM standard have been helpful in improving the credit quality of the housing market in the United States… The QM rule has and will continue to be a solid foundation for responsible underwriting and borrowing in our housing system. As new housing policy or reforms to existing policies are considered, it is important that the foundations of the QM rule remain intact while also balancing the need to ensure creditworthy borrowers aren’t unnecessarily or unintentionally left on the sidelines.”
  • New Column on Low Down Payment Mortgages. A new column has been released that gives consumers the “lowdown” on low down payment mortgages. The column explains the options available to potential homebuyers who can’t afford a 20 percent down payment, giving them the pros and cons of several mortgage loan options.
  • Riskier Borrowers Make Up Growing Share of Government-Backed FHA Loans. According to USA Today, riskier borrowers are making up a growing share of new mortgages backed by the FHA, which have been pushing up delinquencies and raising concerns about a spike in defaults that could harm the housing recovery.In addition, the Inspector General for the Department of Housing and Urban Development (HUD) released a report that found HUD failed to adequately oversee billions of dollars of risky FHA loans, thereby putting the FHA’s Mutual Mortgage Insurance Fund at greater risk.
  • FHFA Director Mel Watt Defends Fannie Mae Deal with Blackstone. Politico Pro(subscription required) reported that FHFA Director Mel Watt is defending the $1 billion deal between Fannie Mae and private equity firm Blackstone to guarantee the company’s loans on 50,000 single-family rental units. Watt defended the deal in letters to the National Association of Realtors and House Democrats, each of whom have written letters to the FHFA expressing their opposition to the deal. According to Bloomberg News, Freddie Mac may also move toward backing loans that finance single-family rental (SFR) homes.

Blog: Balancing Important Protections Provided by Improved Underwriting Standards with Reasonable Consumer Access to Credit

by Patrick Sinks, President and CEO, MGIC and Chairman of USMI

Since the 2008 financial crisis, certain safeguards were put in place that resulted in more stringent underwriting standards for lenders and borrowers. As a mortgage insurer, lenders are my customers. For borrowers who don’t put 20% down – which is not a requirement – and are viewed by lenders as higher credit risk, mortgage insurers reduce or eliminate losses by providing protection to the lender in the event of a foreclosure. In doing so, mortgage insurance (MI) allows qualified homebuyers with low down payments (borrowers can put as little as 3% down with mortgage insurance) to qualify for mortgages because of the guarantee mortgage insurers provide to the system. If a borrower ends up suffering a foreclosure, we are in the so-called “first loss” position, and pay claims to the affected lender.

Today, there is a discussion in Washington about reforming some of the more far-reaching and costly regulations associated with the Dodd-Frank Act, including the Qualified Mortgage (“QM”) rule. To be sure, as a mortgage insurer, we have witnessed the difficulty within the mortgage lending sector to understand, implement, and comply with all the new rules and regulations, all the while ensuring mortgage credit remains available. Safe and prudent lending standards must remain intact throughout the system to avoid another housing crisis, though we must also ensure affordable mortgages don’t become out of reach for creditworthy buyers. There is a balance that must be struck. Three years after the QM rule was adopted, it is highly appropriate for industry and policymakers to ensure that there remains a balance between prudent lending and access to credit.

What the QM Rule Does

The QM rule for conventional mortgages, which was promulgated by the Consumer Financial Protection Bureau (CFPB), went into effect in January 2014 to protect borrowers, lenders, and the U.S. financial system, from risky lending practices that contributed to the housing crisis and its ripple effects throughout the economy.

Also known as the “ability to repay” rule, QM takes into account a borrower’s risk and financial situation, prohibits the use of some of the riskiest types of mortgage from the pre-2008 era, and provides legal protections for lenders if they meet strict underwriting standards.

Because of these features, qualified mortgages sold into mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac (government-sponsored entities, or “GSEs”), are designed as safer investments with less risk exposure to the federal government, and therefore create less risk to taxpayers. During the financial crisis, prior to the QM rule’s existence, the GSEs took a combined $187 billion taxpayer bailout when riskier mortgage loans that the GSEs guaranteed devalued, creating catastrophic losses.

How Does the Current QM Rule Work?

To prevent government and taxpayer exposure to such housing credit risk, the QM rule requires strong underwriting standards that take into account a borrower’s financial profile, such as credit score, as well as establishes requirements for processes that lenders must follow when originating a mortgage. According to the CFPB, the general requirements needed for making a qualified mortgage include:

  • Good-faith determination of a borrower’s “ability to repay” his or her mortgage
  • No excessive upfront fees
  • Elimination of certain loan features, including “interest-only” payment periods, negative amortization, balloon payments, and loan terms longer than 30 years
  • Legal protections for lenders

Why Lending Standards are Critical

The safeguards that came into the marketplace for borrowers, lenders, investors, and ultimately taxpayers with the implementation of the QM standard have been helpful in improving the credit quality of the housing market in the United States. Since the QM rule went into effect, the default rate on loans held by the GSEs has dramatically declined. For example, for mortgages originated at the height of the housing crisis in 2007, the cumulative default rate on loans held by Fannie Mae totaled 14.4%, while for Freddie Mac it was 8.3%. Following the enactment of the CFPB’s QM rule in January 2014, the cumulative default rates for the loans backed by the GSEs have fallen to nearly zero in 2015 and 2016. As noted before, while there have been improvements to credit quality, legitimate concerns are being raised by many stakeholders about whether mortgage credit has become too restricted. The average FICO credit score of a Fannie Mae and Freddie Mac low down payment borrower is over 750, which by all accounts is considered excellent credit. These questions on the access to credit underscore the need to review underwriting standards to ensure they do not overly restrict credit to creditworthy borrowers leaving the question of whether the pendulum has swung too far.

Uniform Lending Standards are Important

While consistency and uniformity are important to nearly all industries, there is a great need for uniform lending standards and rules in the housing finance industry. Currently, the CFPB and the Department of Housing and Urban Development (HUD) have QM rules that are not uniform, which leads to gross inconsistencies in the housing finance industry. For example, the Federal Housing Administration’s (FHA) upfront mortgage insurance premium is excluded from the QM rule’s cap on points and fees, while the private MI upfront premium is included. This inconsistency effectively precludes the financing of MI premiums into the loan amount, leading to higher monthly payments for borrowers. If the QM rules are changed, it should be to align underwriting standards for GSE-backed loans and loans backed by the FHA, which are 100% government-guaranteed. The same standards should be applied to both the GSEs and FHA, given they effectively serve the same low down payment borrowers.

Keep Prudent Lending Standards Intact

Mortgage insurers are required by law to build contingency reserves, meaning that in addition to the capital our companies are required to hold against the risk we insure, a portion of every premium dollar received is reserved specifically for emergencies on a countercyclical basis. In 2015, the Federal Housing Finance Agency (FHFA) implemented even stronger capital requirements called Private Mortgage Insurance Eligibility Requirements (PMIERs), which nearly doubled the amount of capital required for MIs to be approved to insure loans acquired by the GSEs. PMIERs, regulators affirm, reduce Fannie Mae and Freddie Mac’s risk exposure. The same can be said of the QM rule.

The MI industry fully appreciates the impact of the QM rule, and what it takes for lenders to conduct business within the boundaries of the rule, while working to provide access to mortgage credit to homebuyers. Lenders and others in the mortgage finance business are not the only ones impacted by new standards. New rules mean consumers could face different or tightened credit, making it longer to qualify for a mortgage. For some borrowers, new rules mean enhanced lending standards.

The QM rule has and will continue to be a solid foundation for responsible underwriting and borrowing in our housing system. As new housing policy or reforms to existing policies are considered, it is important that the foundations of the QM rule remain intact while also balancing the need to ensure creditworthy borrowers aren’t unnecessarily or unintentionally left on the sidelines.

Blog: The Lowdown on Low Down Payment Mortgages


You would like to buy, but you can’t manage that 20 percent down payment. Does this sound familiar?

The down payment is the biggest impediment to buying a home according to surveys, but in reality many individuals can qualify for a mortgage with as little as 3 percent down.

It is important to compare loans and do the math. Consider your closing costs (the cash you need in-hand), the monthly mortgage payment, and if that payment will go down or up in a few years. Paying a few more dollars each month in the beginning can sometimes save borrowers money in the long term.

For this exercise, we compare a $234,900 home purchase (the national median home price as of December 2016), with a 5 percent down payment and a 720 FICO score. And because calculators and loan terms vary, consider these costs as examples only. A mortgage professional can provide you with specific estimates.

Conventional Loan with PMI

A conventional loan is a traditional mortgage from a lender that is not insured by a government agency. With a 5 percent down payment, the borrower finances the remaining 95 percent over 30 years with a 4 percent interest rate. Private mortgage insurance (PMI) is required because of the low down payment and is $78 of the monthly bill, making the total monthly mortgage payment $1,143.

Pros: A borrower can get a conventional loan with PMI with as little as 3 percent down. PMI can be cancelled once 20 percent equity in the home value is reached, which means your monthly bill decreases.

Cons: For some borrowers, a 5 percent versus 3 percent down payment may be a better deal as costs may be lower.  However, for many prospective homebuyers looking to lock in low interest rates, build equity and home appreciation faster, an option to get into a home with the lower down payment may be better.

A Combo Loan (aka Piggyback Mortgage)

A piggyback involves two separate loans simultaneously. In this scenario, the first “primary” mortgage covers 80 percent of the loan with a 30-year fixed interest rate of 4 percent; the second loan is for 15 percent with 10-year fixed interest rate of 5 percent; and the remaining 5 percent is the down payment. The total monthly mortgage payment would be $1,271.

Pros: The borrower will not pay PMI.

Cons: It may be a more expensive as the borrower will pay closing costs on two loans. And unlike PMI, the piggyback loan doesn’t cancel, but will be paid off over the term of the mortgage. The second loan often comes with higher interest rates too.

FHA Loans

FHA loans are mortgages insured by the government through the Federal Housing Administration. The limits for FHA loans typically are lower than conventional mortgages.  However, FHA mortgage insurance cannot be cancelled and must be paid for the life of the loan. FHA has other specific requirements, like the condition of the home. In this scenario, the mortgage is set at 95 percent of the home’s value with a 30 year fixed interest rate of 3.75 percent. The total monthly mortgage payment would be $1,199.08.

Pros: A borrower can get a FHA loan with as little as 3.5 percent down and a FICO score as low as 600 may qualify.

Cons: FHA mortgage insurance cannot be canceled, so your monthly bill won’t be reduced the way it is with a conventional loan with PMI. Also, FHA loans are subject to an upfront fee of 1.75 percent that is financed over the life of the loan.

No matter what you choose, do the math and compare so you can make an informed decision. If the conventional option sounds appealing, provides more information.

Blog: Time to Be Transparent about Fannie and Freddie Upfront Risk Fees

Data show homeownership has become out of reach for many and that reducing or eliminating upfront fees is overdue.

By Lindsey Johnson

Eight years after the global financial crisis, the U.S. housing market still lags the recovery of the overall economy—and the homeownership rate is at a 50-year low.[1] While the new administration will have many housing related issues to address in the first few years, access to credit should not be overlooked. I was reminded of this and inspired to write this blog after reading a front page story in The Wall Street Journal on December 4 titled “Credit Restrictions Cost Home Buyers ‘Deal of a Lifetime.’[2]

Following the financial crisis, policymakers aimed to eliminate the riskiest mortgage products on the market and shore up the financials of those institutions that make up the housing industry. And, while we cannot turn our eyes away from safety and sound mortgage lending nor can we ever allow any of the riskier types of mortgages to return that led to the financial crisis, the pendulum has swung too far in some areas. To truly address concerns about consumers’ access to mortgage finance, a number of areas of government policy need to be discussed including: 1) the GSEs’ guaranty fees (“g-fees”) policy that was adopted after the financial crisis; 2) GSE Loan Level Pricing Adjustment (LLPA) fees that were added to g-fees during the crisis; 3) private mortgage insurers’ new Private Mortgage Insurer Eligibility Requirements (PMIERs) that were established by the GSEs; and 4) the Federal Housing Administration’s (FHA) pricing and underwriting practices. We will explore many of these topics in future writings, but will focus on one specific aspect here—LLPAs.

Fannie Mae and Freddie Mac charge g-fees, which are the fees borrowers pay to have their mortgage backed by the Federal government through the GSEs. In 2008, the GSEs added LLPAs to further shield the GSEs against the risk of defaults. These crisis-era fees were levied on homebuyers in addition to other fees and costs for managing their risk, based largely on two factors—credit score and the size of their down payment—and most borrowers do not even know about these additional fees. The current president of the National Association of Realtors (NAR) put it best in an American Banker column when he stated “homebuyers are paying a steep price at the closing table in the form of unnecessary fees that, for some, put homeownership out of reach.”[3] Without being transparent about these so-called upfront risk fees, LLPAs will continue to exacerbate a serious concern over the efforts to re-balance these fees in a post-crisis environment.

Low-down payment programs are designed for families who need the help, but the impact of LLPAs on the cost of Fannie or Freddie-backed low-down payment mortgages has been chilling. The Wall Street Journal reports that, “Fannie and Freddie increased fees for riskier borrowers, widening the gap between mortgage rates available to borrowers with good and weak credit.”

This is indeed true. The Treasury Department noted in a recent report, the “credit score of the typical new mortgage borrower is nearly 40 points higher than the typical borrower in the early 2000s.” The “average credit score for those obtaining a loan backed by Fannie Mae and Freddie Mac…in conservatorship is nearly 750”—near perfect credit. And the “loan-to-value” is 80%, which means average down payments are roughly 20% of the home purchase price. These facts are “especially sobering given the fact that more than 40% of all FICO scores nationally fall below 700.”[4] I would argue that these trends mean there are many creditworthy families of all socioeconomic backgrounds deserving of conventional mortgages who are simply unable to buy their first home!

Costs of LLPA Fees on Homebuyers and Taxpayers

LLPAs impose significant costs on homebuyers and disproportionately harm first-time homebuyers and those without large down payments. If a homebuyer puts down 5% on a $200,000 home, and the borrower has a 660 FICO score and is applying for a $190,000 mortgage, then the upfront LLPA is 2.25% on this loan. The borrower will pay for this by either bringing $4,275 additional funds to closing (190,000* 2.25%) or accepting a 0.50%-0.55% higher interest rate. That higher interest rate translates to an additional $50 per month on your mortgage payment. Over 5 years that is more than $3,000 in additional interest and over the life of the loan the borrower pays more than $18,000 in additional interest.

USMI was one of 25 organizations that wrote to FHFA Director Mel Watt in June about the need to eliminate or reduce these arbitrary crisis-era fees. Fortunately, since the financial crisis, defaults have gone down for a variety of reasons, not the least of which is the fact that new underwriting rules have dramatically improved the quality of the GSE portfolio of new home loans, meaning there is a whole lot less risk on the GSEs’ books as these mortgages are performing well. Yet while the cumulative default rate has decreased from 13.7% to almost zero, GSE g-fees, which include LLPAs, have nearly tripled since the mortgage crisis. Therefore, these arbitrary fees are being imposed on borrowers, even though lending is safer and the fact that private mortgage insurance already mitigates the risk the borrower may not repay their loan. Essentially, LLPAs are double charging the borrower for the same risk. The data simply does not justify these fees anymore.

FHFA Responds…

Director Watt’s August 1 response to the 25 groups who called for FHFA and the GSEs to reduce or eliminate these LLPA fees was that “although positive developments in the mortgage market continue to occur, we believe the current g-fees and LLPAs continue to strike the risk balance.”[5] However, speaking at the MBA’s Annual Convention & Expo in October, Director Watt acknowledged that the post-2008 recovery in the housing market has been “disappointingly uneven” in many areas of the country. Not only has the recovery been slower for urban and low-income communities, but these same communities continue to have the hardest time achieving homeownership today.

NAR said in the American Banker column that the GSEs are “charging homeowners for far more risk than they [the GSEs] took on, driving tremendous profit.” The GSEs have paid more than $200 billion to the U.S. Treasury in recent years; given the GSEs are under conservatorship and are mandated to go to zero capital by 2018, the GSEs should continue to focus on providing access to credit for a broad range of borrowers.

The GSEs have a mission to “promote homeownership, especially access to affordable housing.”[6] It is time to eliminate or reduce these unnecessary fees and bring down costs for homebuyers, considering most low-down payment mortgages already come with private mortgage insurance protection—risk that Fannie and Freddie do not have to bear. Private MI has covered first loss mortgage credit risk ahead of American taxpayers for 60 years and mortgage insurers are ready to do more.

[1] Census Bureau



[4] Antonio Weiss and Karen Dynan, Housing Finance Reform: Access and Affordability in Focus

[5] Mel Watt, FHFA Letter to Stakeholders on LLPAs

[6] Chairman Ben Bernanke, ICBA Conference Speech: GSE Portfolios, Systemic Risk, and Affordable Housing

Blog: 2017: An Opportunity to Coordinate America’s Housing Policy

By Lindsey Johnson

While the housing finance system in the United States has developed into an ad hoc set of entities and programs, so has the regulatory system around it with more than seven[i] federal agencies playing a role in the formation of policy and regulation of activities for housing finance. Despite the expansive reach of the federal government in the housing finance system and the exhaustive list of government agencies regulating it, safety and soundness gaps exist, access to credit remains tight, and potential homeowners continue to fall through the cracks. Housing policy has become political in addition to being complex and has therefore created an environment where meaningful reforms are rarely achieved. However, the outcome of the historic 2016 election means that one party will control all three branches of government starting in 2017, which presents a unique opportunity to examine the underpinnings of the housing finance system and establish a more comprehensive and coordinated approach to housing policy, rather than just tinkering around the edges of the mortgage finance industry.

Here are three overarching housing considerations and recommendations for the new Congress and Administration:

  1. There is a need for more coordinated, comprehensive, and transparent federal housing policy.
  2. All attempts to reform the housing finance system should fix the parts of the system that were and are broken, while enhancing the parts of the system that work. Part of the solution to fix what is broken is to identify and address areas of inconsistency and redundancy.
  3. Private capital should play a much greater role in the housing finance system. There should be a regulatory body that sets safety and reliability rules for market players on an equitable basis. Further private capital, not government and taxpayers support, should be encouraged to provide access to credit and protect against credit risk where possible in the housing finance system.

Since major housing policy tends to be reactionary and seldom comprehensive, inconsistencies and overlaps have developed resulting in dramatic shifts between the completely private market (PLS market), the semi-government backed market (conventional market via Fannie Mae and Freddie Mac), and the fully government-backed Ginnie Mae market (FHA, VA, and USDA). One such area of inconsistency is in low downpayment lending, which is increasing as a proportion of the overall residential mortgage market. Currently, a single borrower is subject to different requirements and pays different premium rates for insurance or a guarantee on a low downpayment loan under private mortgage insurance (MI), the FHA, the USDA’s Rural Housing Service, the Department of Veterans Affairs, or state Housing Finance Agency programs—even though the borrower’s risk profile remains the same.

A coordinated policy would inform how low downpayment lending in the U.S. is carried out. For example, it is common in other types of insurance such as crop, flood and terrorism insurance, to limit government programs to higher risk borrowers or to condition access to supplemental capacity by requiring some demonstration of the need for that capacity. The FHA’s current loan limits do not provide a level playing field nor is there a direct preference for a private capital alternative.  Instead, any preference is done indirectly through premium rate setting and competition, which results in an unstable policy environment. The resulting outcome is dramatic fluctuations between these mortgage finance markets, which at times is most evident between the private mortgage insurance market and the 100% government-backed mortgage insurance market at FHA. While it may seem normal to have some fluctuations during different housing cycles, the recent market fluctuations have most often been the result of competition for market share between the two. This is neither conducive for the most efficient and effective mortgage finance market nor does it ensure that borrowers are being best served. Furthermore, there are redundancies and significant overlap between several government agencies such as FHA and the Rural Housing Service (RHS), where on repeated occasions the GAO[ii] and others have suggested consolidating the agencies or at least specific areas of intersection between them.

Of course a true comprehensive, coordinated housing policy will require reform of the GSEs—or as previously stated, fixing the parts of the housing finance system that were and are broken while enhancing the parts of the system that work. Although housing finance reform may not be the first focus of the new Congress and Administration, significant steps could be taken in the near-term to encourage greater reliance of private capital and market discipline in the housing finance system by establishing clarity about the roles of the different agencies in facilitating homeownership and by providing much greater transparency at both FHA and the GSEs about how these agencies price credit risk. Again, this difference between agencies is particularly sharp in the case of FHA and the conventional lending space with Fannie Mae and Freddie Mac, which use private capital, such as private MI, to insure against a portion of first-loss on high LTV loans. However, in this case, a single borrower either pays a premium rate determined on an average basis (FHA) or a risk-based one (private MI), with the risk-based premium driven by “asset requirements” established by the government-guaranteed GSEs but not by the government-guaranteed FHA. So while there continues to be bipartisan support for reducing the government’s footprint and reducing taxpayers’ exposure to mortgage credit risk, the current market’s inconsistencies are considerable roadblocks to achieving that goal.

There are a number of different proposals for reforming the housing finance system, but most essential going forward is that Congress fixes one of the greatest flaws of the previous and current system, namely that government-backed entities – whether completely government controlled such as FHA or quasi-government such as the GSEs – should not set rules for and then compete on an unlevel playing field with the private market. These entities should perform explicit functions that foster greater participation by the private market, should promote a race-to-the top and not a race-to-the-bottom, and should be highly regulated. They should also be completely transparent in the credit risk they guarantee and how they price that credit risk. Transparency about how government prices credit risk would facilitate the greatest level of liquidity in these markets, and for credit risk transfer would foster an understanding of how these transactions are priced and the best execution for each. Finally, providing greater transparency will help end a structure where only a few agencies control the housing finance system because of their ownership of proprietary data, systems, and pricing. In conservatorship, the GSEs have an explicit guarantee on their Mortgage Backed Securities from the federal government. Therefore, until comprehensive housing finance reform is realized, critical steps could be taken now to improve transparency and foster greater understanding by market participants that will ultimately better inform borrowers. More transparent pricing will benefit lenders, investors, and most of all consumers and taxpayers.

As stated by former FHFA Director Ed DeMarco, housing finance reform “remains the great unfinished business from the Great Recession.” The complexity and political nature of the issues surrounding housing finance reform make it a daunting task to be sure, but the new Administration and Congress have a unique opportunity to make the housing finance system more coordinated, transparent, and disciplined to work for taxpayers and borrowers.

[i] Federal agencies involved with housing finance policy and regulation include FHFA, HUD, VA, USDA, Treasury, NCUA, and CFPB

[ii] U.S. Government Accountability Office, HOME MORTGAGE GUARANTEES: Issues to Consider in Evaluating Opportunities to Consolidate Two Overlapping Single-Family Programs (September 29, 2016).  See

Newsletter: November 2016



Here is a roundup of a number of recent events surrounding the opportunities for comprehensive reform of the housing finance industry following the 2016 election, the health of the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, and the future of Fannie Mae and Freddie Mac (GSEs) after conservatorship:

  • Opportunities for Housing Reform in New Administration. In an op-ed in National Mortgage News, Clifford Rossi highlights the opportunities for a comprehensive overhaul of the housing finance system following the historic 2016 election. Rossi notes that the new administration and Congress bring momentum and hope for comprehensive housing reforms and long-lasting changes in the secondary mortgage market, including reforming the GSEs and FHA. He cites “dramatically reducing the federal footprint in housing finance” and the implementation of a coordinated federal housing policy as key criteria for reform.
  • FHA Releases 2016 Annual Report. The FHA released its 2016 annual report to Congress highlighting the health of its Mutual Mortgage Insurance Fund (MMIF) for Fiscal Year 2016. In its response to the report, USMI stated:“Consistent with improvement in the overall mortgage credit market, we welcome the news that FHA’s single-family forward program and the home equity conversion mortgage (HECM) program are combined above the statutory required 2 percent capital ratio. Now that FHA’s single-family fund has climbed its way back, this moment presents an opportunity for the new Administration and lawmakers to consider a coordinated housing policy to ensure broad access to low down payment lending while reducing the government’s footprint in housing and protecting taxpayers.” 

    “The MI industry and FHA should serve complementary roles to promote broad and sustainable homeownership. To accomplish this, FHA needs to not only become more financially resilient, in line with the rest of the financial system, but also remain focused on its core mission of serving underserved communities. USMI stands ready to work with the new Administration and Congress to enhance a mortgage finance system that meets the needs of low down payment borrowers while protecting taxpayers.”

  • GAO Report on the Future of the GSEs after Conservatorship. The Government Accountability Office (GAO) released a report on the Federal Housing Finance Agency’s (FHFA) goals for the Fannie Mae and Freddie Mac conservatorships and the implication of FHFA’s actions for the future of the GSEs and the broader secondary market. The report urges Congress to consider legislation to establish objectives for the future federal role in housing finance and a transition plan to reform the housing finance system that enables the enterprises to exit conservatorship. This report is in response to an April 2016 letter from Sen. Richard Shelby (R-AL) requesting reports from GAO and the Congressional Budget Office on FHFA and the GSEs.
  • MBA, NAHB, NAR Send Letter to Congress. The Mortgage Bankers Association, National Association of Home Builders and National Association of Realtors wrote a joint letter to Congress urging it to quickly act to renew a tax extenders package that includes provisions to provide certainty to the residential real estate market. The letter specifically calls for the extension of the mortgage debt forgiveness income exclusion and the mortgage insurance premium deduction. The deduction became effective in 2007 and is set to expire in 2016 unless Congress extends or makes it permanent. Tax savings associated with the mortgage insurance deduction can be a decisive factor for many prospective borrowers. In 2014, 4.2 million taxpayers benefited from deductions for mortgage insurance, with an average deduction of $1,403. The total amount of deductions claimed in 2014 was nearly $6 billion. 

Statement: FHA’s Annual Report to Congress



For Immediate Release             

Media Contact: Dan Knight


USMI Statement on FHA’s Annual Report to Congress

WASHINGTON Today, the Federal Housing Administration (FHA) released its “Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund (MMIF) Fiscal Year 2016.” The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“Consistent with improvement in the overall mortgage credit market, we welcome the news that FHA’s single-family forward program and the home equity conversion mortgage (HECM) program are combined above the statutory required 2 percent capital ratio. Now that FHA’s single-family fund has climbed its way back, this moment presents an opportunity for the new Administration and lawmakers to consider a coordinated housing policy to ensure broad access to low downpayment lending while reducing the government’s footprint in housing and protecting taxpayers.

“FHA serves an important countercyclical role in the mortgage finance system. Following the financial crisis, FHA’s insured market share grew nearly 300 percent from its pre-crisis market and remains at elevated levels today — and it has taken nearly a decade for the MMIF to recover from serving this countercyclical role. Now that FHA is back to meeting the 2 percent ratio requirement, there is also an opportunity to focus on strengthening FHA’s capital standard, which is dramatically less than what is required of FHA’s private market counterparts, to make the agency more financially resilient going forward. Changes in market conditions, or changes in the very volatile HECM program, could easily push the FHA back into the red.

“Further, this is also the time to refocus the FHA back to its core mission. Fortunately, today there is a healthy low downpayment GSE mortgage market — backed by private mortgage insurance — available to borrowers so FHA no longer needs to play an oversized role in our housing market. Private mortgage insurers put their own capital at risk to mitigate mortgage credit risk, provided over $50 billion in credit risk protection since the financial crisis to the GSEs, and did not take any taxpayer bailout. And this market has been strengthened since the financial crisis as all MIs have all implemented significant new capital requirements, or the Private Mortgage Insurer Eligibility Requirements (PMIERs), which are stress-tested financial and capital requirements established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, enhancing MI’s ability to assume mortgage credit risk in the future.

“The MI industry and FHA should serve complementary roles to promote broad and sustainable homeownership. To accomplish this, FHA needs to not only become more financially resilient, in line with the rest of the financial system, but also remain focused on its core mission of serving underserved communities. USMI stands ready to work with the new Administration and Congress to enhance a mortgage finance system that meets the needs of low downpayment borrowers while protecting taxpayers.”


U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at