Month: October 2018

Blog: Areas of Alignment for Administrative Reform

Posted on by dcadmin

September marked the 10th anniversary of the GSEs being placed into conservatorship and there is growing recognition that Congress may not be able to tackle the complex issue of housing reform until 2019 or perhaps even later. But not all aspects of housing reform need to wait for action by Congress. USMI has produced the following white paper to assist the Trump Administration, particularly the Department of Treasury and the independent Federal Housing Finance Agency (FHFA), in identifying the key areas where the Administration should focus its efforts and specific steps the Administration can take to put the housing finance system on a more sustainable path. USMI provides specific recommendations to:

  • Reduce the duopolistic market power of the GSEs
  • Increase transparency
  • Expand private capital and reduce taxpayer risk
  • Promote a strong regulator that establishes uniform standards and uses transparent processes to assess the GSEs’ activities and products

While reforming the GSEs and putting the housing finance system on a more stable, sustainable path is the primary focus of this paper, it is essential that reform is not done in a vacuum. True housing finance reform should also address the Federal Housing Administration (FHA) and dynamics between private and government-insured lending channels to balance taxpayer protection with access to mortgage finance. Actions taken under Administrative reform could further reduce taxpayer risk, level the playing field between the GSEs and private market participants, and provide greater transparency regarding GSE pricing and practices. Further, Administrative reforms could be the catalyst needed to break the legislative logjam and enable Congress to enact comprehensive housing reform legislation.

The full paper can be downloaded here. Below, USMI has outlined 11 key takeaways for policymakers to consider when contemplating the future of housing finance. A PDF of these recommendations can be downloaded here.

Blog: Take a Second Look at Your Homebuying Options

Posted on by dcadmin

Buying a home is an exciting process, but for many people it can also seem out of reach. While many renters would like to buy, there are several factors that may lead potential homebuyers to believe they may not be ready. These include credit score requirements, income and debt levels, and the common myth that a 20 percent down payment is needed. Here is some good news: Qualifying for a mortgage may not be so far out of reach.

While it is true that borrowers with stronger credit profiles—FICO scores of 720 and higher, low debt-to-income (DTI) ratios, and cash reserves—generally receive better mortgage terms, there are products in the market that can enable access to affordable, prudently underwritten mortgage financing.

Down payment is routinely cited by prospective homebuyers as the largest hurdle to homeownership, but low down payment mortgages are widely available in today’s market. These include conventional loans with private mortgage insurance (MI) and government-backed loans like those insured by the Federal Housing Administration (FHA).

Many borrowers incorrectly believe that they need a 20 percent down payment to buy a home, but with private MI a borrower can qualify for a conventional home loan with as little as 3percent down. In addition to the competitive pricing of mortgages backed by private MI, private MI can be canceled when a borrower reaches 20 percent equity in his or her home. This added perk often makes private MI a more affordable option over other home loan programs—such as FHA-backed home loans—which require mortgage insurance premiums for the vast majority of borrowers for the entire term of the mortgage, which is often 15 or 30 years.

For more than 60 years, more than 30 million homeowners have used private MI to successfully buy homes and build the long-term wealth associated with home equity. In 2017 alone, private MI helped more than one million borrowers nationwide purchase or refinance a mortgage. According to a study by U.S. Mortgage Insurers, 56 percent of those borrowers who received purchase loans were first-time homebuyers and more than 40 percent had incomes below $75,000.

For decades, millions of homeowners and prospective homebuyers have relied on private MI to help them affordably and responsibly buy a home. Based on median home prices, it can take an average of 20 years to save for a 20 percent down payment. And with home prices dramatically on the rise, this wait time will only increase. Luckily, private MI can help you get into the home of your dreams sooner.

When making homebuying decisions, it is important to take a second look to make sure you are aware of all your options. Check out lowdownpaymentfacts.org to learn more.

Op-Ed: PMI must play crucial role in housing reform

Posted on by dcadmin

A version of this piece originally appeared on Scotsman Guide on September 25, 2018 and was written by USMI Chairman Bradley Shuster. 

Government-backed conventional mortgages totaled approximately $5.3 trillion as of summer 2018. As every follower of the mortgage finance system knows, the guarantors of this multi-trillion-dollar mortgage credit risk—Fannie Mae and Freddie Mac (the GSEs)—have remained under government control since being placed into conservatorship in 2008.

While GSE reform is contemplated by Congress each year, holistic legislative reform remains elusive. It’s time for our federal elected officials to put the GSEs on a more sustainable path so U.S. taxpayers don’t continue to bear the burden of undue mortgage credit risk.

There is encouraging news, however: some areas of reform have received consistent bipartisan support. The use of private capital to transfer credit risk away from taxpayers is widely supported by housing experts, members of Congress from both sides of the aisle, and the White House. There are a number of ways to do this, and over the past several years, the GSEs have been exploring new programs including transferring second-loss risk (so-called “mezzanine risk”) through credit risk transfer (CRT) transactions.

For over 60 years, private mortgage insurance (MI) has served as a significant means for transferring mortgage credit risk away from the federal government and taxpayers. This is for good reason: private MI is one of the only forms of loan-level credit enhancement positioned in a first-loss position to lenders and the GSEs—transferring the risk before it ever reaches the GSEs’ balance sheets. Private MI has helped nearly 30 million families become homeowners, including many first-time homebuyers and low- to moderate-income borrowers, by allowing them to receive prudently underwritten mortgages with as little as three percent down. In fact, private MI helped more than one million borrowers purchase or refinance a mortgage in 2017 alone and 56 percent of purchase loans went to first-time homebuyers. Further, private MI not only helps put families in homes but also keeps them there by being responsive to troubled borrowers and working with homeowners to avoid default with prudent modifications.

Since the financial crisis, the MI industry has taken important steps to strengthen and enhance its risk protection capabilities, particularly with the new Private Mortgage Insurer Eligibility Requirements (PMIERs) enacted in 2015, which nearly doubled the industry’s pre-crisis capital requirements. The industry has also improved its claims processes through updated Master Policy Agreements, which provide lenders with greater clarity about when and how the industry pays claims. Today, more than $930 billion in GSE mortgages have private MI coverage and the industry has covered more than $50 billion in claims since the GSEs entered conservatorship.

When a mortgage insurer pays a claim, it’s a claim that neither the lender nor taxpayers (for the GSEs) have to shoulder. It’s not just claims though; the MI industry is a leader in mortgage underwriting. As a loan level product, private MI brings to the table a second set of eyes in the underwriting process, which helps to approve low down payment borrowers for home financing while ensuring these borrowers meet today’s prudent lending requirements. This is where private MI has unique advantages over other forms of credit enhancement, and why it’s essential private MI remains a fundamental component of the way the GSEs transfer credit risk in any reformed system.

The GSEs and the Federal Housing Finance Agency (FHFA), as conservator and regulator, are experimenting with other CRT mechanisms as Congress considers reform. These different CRT mechanisms are similar to how mortgage insurers manage and distribute their own credit risk exposures. Importantly, unlike some other forms of opportunistic capital, private MI is consistently available across market cycles, ensuring borrowers will continue to have access to affordable mortgage credit even during bad economies and that taxpayers will consistently have meaningful protection against mortgage credit risk. Importantly, mortgage insurers do not just buy and hold mortgage credit risk. Over the years, the MI industry has demonstrated increasing sophistication in evaluating and managing this long-tail mortgage credit risk. For decades, the MI industry has actively participated in reinsurance transactions in the normal course of business to disperse risk to enhance its capital allocation and manage its own risk exposure.

More recently, the industry has also participated in various capital markets transactions. In April 2017, National MI (NASDAQ: NMIH) successfully completed its first securitization of MI risk with the issuance of more than $200 million of insurance-linked notes and this July announced the pricing of $264.5 million of 10-year mortgage linked notes. These securitizations not only help disperse mortgage credit risk, but also free up capital that can be used to help more borrowers purchase homes. Other MI companies are participating in similar securitizations and these transactions have established the MI industry as a nimble and innovative player in the housing and mortgage sector. Since 2013, U.S. Mortgage Insurers (USMI) members have transferred to the global capital and reinsurance markets $34 billion of risk, covering $160 billion of primary risk written.

What happens during a stressed market cycle is important to consider. The reality is much of what the GSEs have been experimenting with are forms of CRT that are not tied to housing and therefore will be unavailable for this type of mortgage credit risk when the housing sector is under stress. That’s one of the reasons why private MI remains an essential form of risk transfer for the GSEs. If the GSEs were to rely on their own balance sheets or an MI alternative that suddenly became unavailable, the government and taxpayers would be unduly exposed to risk.

And the MI industry is poised and capable of doing even more in any reformed housing system. While it is prudent for the GSEs to transfer second-loss risk into the capital markets, the MI industry remains active in underwriting and managing new credit risk—thereby reducing risk in the overall mortgage finance system—and remains committed to providing credit enhancement that protects taxpayers while ensuring borrowers have access to low down payment lending.
The MI industry and its products are among the most sophisticated and experienced in the housing finance system when it comes to risk management. The MI industry has proven to be unparalleled in its innovation and leadership in promoting homeownership for the last six decades and has much more to offer American homeowners. Lawmakers and policymakers have important work ahead of them to reform the GSEs, and the MI industry stands at the ready to ensure its invaluable services are part of any new system.

Bradley Shuster is the Chairman of the Board and CEO of National MI, and serves as current Chairman of U.S. Mortgage Insurers (USMI).

Statement: FHFA’s Updates to Private Mortgage Insurers’ Eligibility Requirements (PMIERs)

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President Lindsey Johnson issued the following statement on the Federal Housing Finance Agency’s (FHFA) newly released changes to its Private Mortgage Insurer Eligibility Requirements (PMIERS). PMIERS are a set of requirements implemented in 2015 for private mortgage insurance companies to be approved to insure loans acquired by Fannie Mae and Freddie Mac:

“The existing robust capital and operational standards brought by PMIERS have provided exactly what Fannie Mae and Freddie Mac (the GSEs) and other market participants sought in the role of private mortgage insurers (MI)—greater confidence as permanent, dedicated sources of first loss credit risk protection and as trusted ‘second sets of eyes’ to protect long-term value in the housing finance system. PMIERs, which are the set of requirements for mortgage insurers to be approved to insure loans acquired by the GSEs, were developed after a public notice and comment period that the FHFA initiated in 2014. Since being implemented in 2015, PMIERs nearly doubled the amount of capital each mortgage insurer is required to hold, resulting in a minimum MI level of capital assets over 7 percent of risk insured. USMI member companies have maintained levels significantly over the PMIERs requirements, with each company holding millions in excess—and USMI members collectively holding nearly $2.6 billion in excess of these requirements.

“USMI members appreciate the opportunity to provide feedback to the GSEs and FHFA on proposed changes and the incremental improvements made in PMIERs 2.0. We look forward to continuing to work with the GSEs and FHFA in the future to build upon the strong credit enhancement that the mortgage insurance industry provides to protect lenders, the GSEs, and taxpayers. As publicly traded companies, private MIs have a keen interest in ensuring that the process for the development of any changes to PMIERs is transparent and that proposed changes are based on an econometric rationale that can be modeled and explained to investors, industry stakeholders and, importantly, to borrowers. Further, as the only GSE counterparties that have gone through a public notice and comment period for capital and operational requirements when PMIERs were initially developed and implemented, and that are currently transparent to all market participants and stakeholders, there should be greater consistency in the development and application of these same or equivalent capital standards for all sources of credit enhancement who take the same credit risk. This consistency will better ensure GSE counterparties are well capitalized, highly-regulated, are able to protect taxpayers through different market cycles, and will promote a more level playing field.

“PMIERs reflect that today’s MIs are highly capitalized, reliable counterparties. The MI industry provided significant protection against mortgage-related credit risk through the last financial crisis—paying more than $50 billion in claims through the downturn—before PMIERs were implemented. Today, the industry is on much better footing to further protect taxpayers during the next downturn.

“For more than 60 years, private MI has helped more than 30 million families qualify for a mortgage by bridging the gap between the down payment and home financing. In 2017 alone, MI helped more than one million borrowers safely purchase or refinance a mortgage. Today, the MI industry is stronger than it has ever been, and the requirements under PMIERs makes the industry even better poised to protect the GSEs and American taxpayers from mortgage credit risk 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 www.usmi.org.