Month: November 2019

Blog: Mortgage Insurance: A faster way into your first home

Posted on by dcadmin

For many Americans, the biggest hurdle in buying a home is the down payment. According to a recent report, 49% of non-homeowners stated that not having enough money for a down payment and closing costs was a major obstacle to purchasing a home. Many people also mistakenly believe lenders require a 20% down payment to qualify for mortgage financing.

Data shows that by using private mortgage insurance (MI), millions of homebuyers with down payments as low as 3% or 5% have been approved for affordable and well-underwritten mortgages.

In the past year alone, MI has helped more than 1.1 million borrowers purchase or refinance a mortgage. Nearly 60% were first-time homebuyers, and more than 40% had annual incomes below $75,000.

How MI works

In addition to the other elements of the mortgage underwriting process — such as verifying employment and determining the borrower’s ability to afford the monthly payment — lenders require borrowers to commit some of their own money before approving their mortgage loan. This is where MI entered the system more than 60 years ago, to bridge the down payment gap and help creditworthy borrowers qualify for a mortgage without large down payments.

Benefits of MI

  • It helps you buy a home sooner. On average it could take 20 years for a household earning the national median income of $61,372 to save 20%, plus closing costs, for a $262,250 home, the median sales price for a single-family home. MI helps borrowers qualify with as little as 3% down.
  • It is temporary, leading to lower monthly payments down the road. MI can be cancelled once 20% equity is established, either through payments or home price appreciation. Borrowers typically can cancel MI within the first five to seven years. This is not the case for the vast majority of mortgages insured by the Federal Housing Administration. FHA mortgage insurance premiums stay on the loan for the life of the loan.
  • It provides several flexible payment options. Your lender can offer several MI product options for MI payment; the most common is paid monthly along with your mortgage until the MI cancels.

MI is a stable, cost-effective way to obtain a low down payment mortgage, and offers distinct benefits to borrowers. It’s been a cornerstone of the U.S. housing market since 1957, providing more than 30 million families with the opportunity to own homes despite financial barriers. If you are considering purchasing a home, it is important to understand your options, including your low down payment options. To learn more, visit LowDownPaymentFacts.org.

Statement: HUD’s 2019 Annual Report to Congress

Posted on by dcadmin

WASHINGTON— Lindsey Johnson, President of the U.S. Mortgage Insurers (USMI), released the following statement today on the U.S. Department of Housing and Urban Development (HUD) release of its 2019 Annual Report to Congress on the financial status of the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund (MMIF):

“USMI appreciates HUD’s thorough analysis of the MMIF’s economic condition and the release of valuable data on FHA borrower trends and mortgage performance. According to the report, the MMIF’s capital ratio stands at 4.84 percent, up from 2.76 percent last year, continuing the much-needed upward trend above the thin statutory requirement of only 2 percent. We applaud the FHA’s continued efforts to stabilize and further strengthen the fiscal health of the fund so that the FHA can continue its important role alongside the rest of us in serving the low-down payment market. We are encouraged by the longer-term focus of FHA as stated in their Annual Report, recognizing that ‘the MMI capital ratio is a result, not the target.’ Given the ‘extreme risk layering’ that FHA cites is on the rise, the cyclicality of the mortgage market, and the volatility of the Home Equity Conversion Mortgage (HECM) program, USMI agrees with the Administration’s actions to ensure that FHA can withstand another housing downturn and serve its important countercyclical role.

“In the Annual Report, Secretary Carson highlights that ‘[i]n our Housing Finance Reform Plan released in September of this year, we propose a number of solutions that would reduce risks to the MMI Fund, protect taxpayers from future bailouts, and ensure the FHA maintains its focus on providing access to mortgage financing to low- and moderate-income families that cannot be fulfilled through traditional underwriting.’The FHA is a very important part of the housing finance system, and USMI has long called for a more complementary, not competitive, role between FHA and the conventional market. Thankfully, today there is a vibrant low-down payment conventional market backed by private capital that continues to prudently facilitate the low-down payment credit needs of millions of Americans, giving consumers more options and shielding taxpayers from undue risk. In the past year alone, the private mortgage insurance (MI) industry helped more than 1.1 million people purchase or refinance their home—nearly 60 percent of purchasers were first time homebuyers and more than 40 percent of borrowers with private MI had annual incomes of $75,000 or less.

“Private MI continues to be well positioned to play a leading role in enabling borrowers to access affordable and sustainable low-down payment mortgage credit and serving as the first layer of protection against mortgage defaults to protect U.S. taxpayers and the federal government. In this sense, private MIs hold nearly double the capital assets that they held before the financial crisis, and just last week, USMI released details on the innovative growth of private MI credit risk transfer (MI CRT). Over the last four years, through new MI CRT structures, the industry transferred nearly $34 billion in risk on nearly $1.3 trillion of insurance-in-force, enhancing MI resiliency and the risk protection provided to the conventional mortgage market.

“Going forward, USMI and our member companies look forward to working with FHA and the Administration to promote complementary roles for the conventional market and FHA in the low-down payment lending space in order to best serve borrowers and protect 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 www.usmi.org.

Newsletter: November 2019

Posted on by dcadmin

CONGRATS TO THE NATS! While the baseball season has officially ended, housing finance reform still has a few innings left in the game. On Monday, National Mortgage News reported on U.S. Mortgage Insurers’ (USMI) release of new details on the growing mortgage insurance credit risk transfer (MI CRT) market. USMI President Lindsey Johnson also spoke about innovative MI CRT on a panel at the Structured Finance Association’s (SFA) Residential Finance Symposium. On the housing finance reform front, Federal Housing Finance Agency (FHFA) Director Mark Calabria said that he is currently in negotiations with the Treasury Department to amend the Preferred Stock Purchase Agreements (PSPAs). He also spoke at an event hosted by the American Action Forum (AAF), where he was followed by a panel discussion on housing finance reform. Last week, FHFA released its 2019 Strategic Plan and 2020 Scorecard for Fannie Mae and Freddie Mac (“the GSEs”). This comes following several recent comments by Director Calabria reiterating the agency’s commitment to responsibly ending the GSEs’ conservatorships. In mid-October, Citizens Against Government Waste (CAGW) applauded the direction of FHFA under Director Calabria’s leadership. Lastly, we’re seeing more movement coming with the nomination of Brian Montgomery as Deputy Secretary of the Department of Housing and Urban Development (HUD) in early October.

Despite a busy month, there’s still plenty to look forward to at the #NEXTDC19 conference on November 18 and 19, which will bring policy experts together and create a great stage for lively discussions on the future of housing policy. Most importantly, ahead of the Veterans Day holiday, we want to thank and recognize all of the veterans who have bravely served in the United States Armed Forces. We are grateful for your service. 

USMI announces details on MI Credit Risk Transfer. On November 4, USMI announced that private MI companies transferred nearly $34 billion in risk on nearly $1.3 trillion of insurance-in-force from 2015 to 2019 to the global reinsurance and capital markets. USMI released details on the development and growth of the MI CRT market, which outlines the types of structures being used by the industry to transfer risk to reduce volatility and exposure of mortgage credit risk within the mortgage finance system, including to the GSEs, and therefore taxpayers. It also finds that active adoption of CRT by private mortgage insurers has transformed the industry to better insulate it from cyclical mortgage markets and enhanced MIs’ ability to be more stable, long-term managers and distributors of credit risk.

USMI President Lindsey Johnson spoke to MI CRT on a panel at the SFA’s Residential Finance Symposium. She also spoke with National Mortgage News on the innovative ways private MI is now actively managing mortgage credit risk. Johnson stated that in recent years mortgage insurers are not just participating in GSE CRT transactions, but also distributing their own risk through MI CRT.

AAF hosts panel discussion on housing finance reform. On November 6, AAF hosted a panel titled, “Fannie Mae and Freddie Mac: What’s Next?” Speakers included FHFA Director Mark Calabria; Dr. Norbert Michel, Director of the Center for Data Analysis at the Heritage Foundation; Dr. Michael Stegman, Senior Fellow of the Housing Finance Program at the Milken Institute Center for Financial Markets; and Thomas Wade, Director of Financial Services Policy at AAF. The panel was moderated by CNN’s senior economics writer, Donna Borak. The panel discussed the Treasury Department’s and HUD’s GSE Reform Plans, FHFA’s and Treasury’s actions to allow for the recapitalization of the GSEs, and additional reform initiatives by the Administration.

FHFA releases new Strategic Plan and Scorecard for Fannie Mae and Freddie Mac. On October 28, FHFA released its 2019 Strategic Plan and 2020 Scorecard, detailing the near-term future for the GSEs. In the Strategic Plan, FHFA provided a roadmap on how the GSEs will fulfill their statutory missions and maintain their focus on safety and soundness while preparing for what the FHFA calls “a responsible end to the conservatorships.” The 2020 Scorecard details how the GSEs will remain accountable for “the effective implementation of the Strategic Plan in the coming year.” Both documents outlined three key goals: (1) foster competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets that support sustainable homeownership and affordable rental housing; (2) operate in a safe and sound manner appropriate for entities in conservatorships; and (3) prepare for their eventual exit from conservatorships.

In FHFA’s press release, Director Calabria said, “Our nation’s mortgage finance system is in urgent need of reform. The vision for reform articulated in the Strategic Plan and advanced in the Scorecard will serve borrowers and renters by preserving mortgage credit availability, protect taxpayers by ensuring Fannie Mae and Freddie Mac can withstand an economic downturn, and support a strong and resilient secondary mortgage market.”

FHFA intensely focused on the GSEs exiting conservatorship. At a meeting with reporters on October 31, Director Calabria noted that he is not giving Fannie and Freddie an easy pass. “I’ll certainly say I have yet to meet anybody who wants to get out of conservatorship as much as Fannie and Freddie do. But certainly, what you’ve been seeing over the last few years is not the kind of day-to-day behavior that you would expect from companies that are in conservatorship.”

Earlier that week, Director Calabria gave a keynote speech at the Mortgage Bankers Association’s Annual Convention in Austin, TX, and explained that after just one quarter of capital retention where Fannie and Freddie profits weren’t swept to Treasury, the companies doubled their capital buffers. “Fannie and Freddie will move forward thoughtfully, but this does not mean moving slowly.” But as exiting the conservatorship moves closer, Director Calabria explained he will ensure that it is done right. “I will not end the conservatorship unless I am confident that once Fannie and Freddie leave, they will never have to return.”

CAGW applauds FHFA’s new leadership. On October 16, CAGW wrote that “Mark Calabria is moving FHFA in a new direction and making taxpayers his top priority.” CAGW provided several examples of Director Calabria’s work, including FHFA’s focus on building capital at the GSEs to protect taxpayers, revising the GSEs’ multifamily lending caps, and the termination of the GSEs’ Mortgage Servicing Rights (MSR) pilot program.  Regarding the MSR pilot, CAGW noted that FHFA should apply this logic to any other pilots that allow the GSEs to push into markets and engage in activities that are already thriving. It is promising that Director Calabria is reviewing all pilots and new activities that expand the GSEs’ market dominance and encourages the enterprises to expose taxpayers to additional risk.”

Nomination of Brian Montgomery as HUD Deputy Secretary. On October 8, HUD announced that Commissioner Montgomery had been nominated to serve as Deputy Secretary and the Senate Banking Committee will consider his nomination on November 20. Montgomery, who also serves as HUD’s Assistant Secretary for Housing and Federal Housing Commissioner, would manage the day-to-day operations of the agency and assist Secretary Carson in leading the department’s nearly 8,000 employees. USMI applauded the decision, noting “Commissioner Montgomery is a respected, seasoned mortgage finance expert, and his unique experience and past public service have been major assets to the FHA. His extensive background will allow him to immediately begin work on the most important issues facing the housing finance system.”

Upcoming events. The#NEXTDC19 conference is an event focused on delivering policy intel. On November 18 and 19, it will bring together the most influential housing policy leaders, mortgage lenders, and fintech firms.

Press Release: Private Mortgage Insurers Transfer Nearly $34 Billion in Risk on Nearly $1.3 Trillion of Insurance-in-Force from 2015-2019

Posted on by dcadmin

USMI releases details on the developments and growth of private mortgage insurance credit risk transfer

WASHINGTON — U.S. Mortgage Insurers (USMI) today announced that private mortgage insurance (MI) companies transferred nearly $34 billion in risk on nearly $1.3 trillion of insurance-in-force from 2015 to 2019. USMI released details on the developments and growth of the MI credit risk transfer (MI CRT) market, which outlines the types of structures being used by the industry to transfer risk to reduce volatility and exposure of mortgage credit risk within the mortgage finance system, including to the government sponsored-enterprises (GSEs), and therefore taxpayers. It also finds that active adoption of CRT by private mortgage insurers has transformed the industry to help better insulate it from the cyclical mortgage market and enhanced their ability to be more stable, long-term managers and distributors of risk.

“Through innovative new MI CRT structures, the industry is taking additional steps to enhance MI resiliency and the risk protection provided to the conventional mortgage market. MI CRT demonstrates that MI companies are sophisticated experts in pricing and actively managing mortgage credit risk,” said Lindsey Johnson, President of USMI. “Private MI plays a critical function in the housing finance system by serving as the first layer of protection against mortgage defaults. MI is also one of the only sources of private capital that has been available through all market cycles. After the financial crisis, the MI industry improved its safety and soundness through enhanced capital and operational standards, which in turn made us more resilient to withstand severe economic stress.”

USMI examined the two main MI CRT structures: Reinsurance and Capital Markets. It found that mortgage insurers have executed 18 reinsurance deals since 2015, transferring over $25 billion of risk on over $530 billion of insurance-in-force. As for the Capital Markets structure, the industry introduced MI Insurance Linked Note (ILN) programs beginning in 2015. Since then, mortgage insurers have issued 19 ILN deals, transferring $7.8 billion of risk on over $730 billion ofinsurance-in-force.

“While the MI industry has distributed credit risk for decades, these innovative CRT structures adopted by the industry in 2015 have transformed it from a ‘buy-and-hold’ into an ‘aggregate-manage-and-distribute’ model,” said Johnson. “The financial risk management approach of private MI companies has become much more countercyclical and significantly benefits the housing finance system.”

Because private mortgage insurers typically hold a portion of the first loss there is an alignment of incentives that ensures quality underwriting continues to be done by the industry, which reduces investors’ risk exposure, and ensures quality control on risk for investors and within the broader financial system. The investor base in these transactions continues to grow exponentially as the frequency of transactions increases, and the MI CRT investors to date represent trillions of dollars of private capital under management that provides a stable, deep pool of liquidity for the market.

“The MI CRT structures underscore the resilient nature and benefits of MI and the private capital it supplies to the housing market, safeguarding taxpayers against mortgage defaults, and ensuring that the private MI industry will continue to play a vital role in the mortgage finance system,” added Johnson.

More information on MI CRT is available here.


###

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.