Statement: On IMAGIN
WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on the recent news that Freddie Mac is piloting a new low down payment insurance program aimed at a small segment of the market called Integrated Mortgage Insurance (IMAGIN).
“Mortgage insurers (MI) have been supporting the U.S. housing market since 1957 by enabling homeownership opportunities for more people by providing insurance on mortgage loans where borrowers cannot afford a 20 percent down payment. To date, the MI industry has made homeownership possible for more than 25 million Americans.
“Mortgage insurers have taken steps to enhance both their claims paying ability—by increased capital and operational standards through the Private Mortgage Insurer Eligibility Requirements (PMIERs)—and their claims paying process through updated Master Policy Agreements. These important steps lay the foundation for efforts to further “de-risk” the government sponsored enterprises (GSEs) through expanded use of private capital with MI, including through deeper cover mortgage insurance.
“Last week, Freddie Mac rolled out a pilot program (IMAGIN) that bypasses the highly regulated and highly capitalized MI industry, and began purchasing credit enhancement from an entity that is not held to the same regulatory standards as the MI industry. We believe that the IMAGIN pilot violates the spirit of the Congressional charter for Freddie Mac and represents a significant blurring of the bright line separation between primary market and secondary market activities. Because MI selection is currently handled by the lender as part of the primary market process, the IMAGIN program sets a precedent of allowing the GSEs to participate in primary market activities while also putting the taxpayer at greater risk by circumventing the high capital and regulatory standards that MIs are held to today.
“USMI is also concerned with the lack of transparency about the program and its development as well as the inherent conflict of interest in Freddie Mac’s role of imposing PMIERs standards on private MIs and then designing a program that relies on less regulated (and in turn less expensive) reinsurers to circumvent these standards. We are also concerned about this program due to its lack of sustainability. As monoline insurers, the MIs serve as capital that is more permanent and committed to taking only U.S. housing risk, where the IMAGIN panel of reinsurers have no such commitment. This could leave the mortgage finance industry—and taxpayers—exposed and negatively affect home ownership.
“Rather than moving forward with this new pilot, we believe now is the time for the GSEs to explore options to use more private mortgage insurance. The MI industry has demonstrated its ability to raise capital in the equity and debt markets, and also tap into other investors in the capital and reinsurance markets, to distribute risk.
“A deep MI pilot built around the core strengths of the MI industry, lender relationships, independent underwriting standards, and expertise in pricing long tailed credit risk, combined with Credit Risk Transfer via the capital and reinsurance markets by MI companies, can better protect the U.S. taxpayer while also providing prudent access to home ownership.”
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 www.usmi.org.