Month: December 2021

Statement: Nomination of Sandra Thompson as FHFA Director

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WASHINGTON — Lindsey Johnson, President of the U.S. Mortgage Insurers (USMI), today issued the following statement on President Biden’s intent to nominate Sandra Thompson for Federal Housing Finance Agency (FHFA) Director:

“USMI and our member companies welcome President Biden’s nomination of Sandra Thompson to serve as the next Director of FHFA. Thompson brings decades of experience in financial regulation, risk management, and consumer protection, all of which will help ensure the safety and soundness of the GSEs, Fannie Mae and Freddie Mac, and the Federal Home Loan Banks and will help instill strength into the housing finance system.

“Since being named Acting Director of FHFA in June, Thompson has quickly demonstrated her commitment to promoting an equitable and robust conventional mortgage market that balances access to affordable and sustainable mortgage credit. Private mortgage insurers share Thompson’s objectives to achieve sustainability and affordability for borrowers, as well as enhance equitable access to all those who are mortgage ready. Once confirmed by the Senate, the MI industry looks forward to continuing to work with Thompson in her new capacity to advance these goals.”

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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: December 2021

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With the recent passage of the bipartisan infrastructure bill, Congress has moved onto the Build Back Better Act, which includes approximately $170 billion in funding for housing initiatives. On December 1, a bill was introduced in the House to make permanent and expand eligibility for the federal tax deduction of mortgage insurance (MI) premiums. USMI recently submitted two comment letters to the Federal Housing Finance Agency (FHFA) on its proposed “Amendments to the Enterprise Regulatory Capital Framework Rule,” and its “Enterprise Equitable Housing Finance Plans.” Finally, USMI published a new blog examining the costs that are often additional and unanticipated by prospective homeowners. We delve into these developments and more below.

Build Back Better Act
The Middle Class Mortgage Insurance Premium Act of 2021
USMI Submits Comment Letter on FHFA’s Proposed Amendments to the Enterprise Regulatory Capital Framework
USMI Submits Comment Letter on FHFA’s Enterprise Equitable Housing Request for Input
New Blog: Hidden Costs Harmful to Homeownership
What We’re Reading
Nominations We’re Watching
ICYMI: USMI Member Spotlight – Essent

Build Back Better Act. The House passed the $1.75 trillion Build Back Better (BBB) Act on November 19, sending the social spending bill to the Senate. The legislation allocates about $170 billion to provisions for affordable housing. According to the Biden administration, this would be the largest investment in affordable housing in history and it will mean the construction or preservation of more than 1 million affordable homes. BBB, in its current form, would provide funding for numerous homeownership initiatives, including: $10 billion for first-generation first-time homebuyer down payment assistance (DPA) based on House Financial Services Committee Chairwoman Maxine Waters’ (D-CA) “Downpayment Toward Equity Act”; $10 billion for the U.S. Department of Housing and Urban Development’s (HUD) HOME Investment Partnerships Program to fund building, buying, and/or rehabilitating affordable housing for rent or homeownership; $5 billion for wealth-building loans (20-year subsidized mortgages) for first-generation first-time homebuyers based on Sen. Mark Warner’s (D-VA) “Low-Income First-Time Homebuyers Act” (LIFT Act); $1.75 billion for a new “Unlocking Possibilities” zoning and land use reform program; $800 million for fair housing activities; and $100 million for a pilot program at HUD to expand small-dollar mortgage options for homebuyers purchasing homes at $100,000 or less.

The Middle Class Mortgage Insurance Premium Act of 2021. On December 1, Reps. Ron Kind (D-WI) and Vern Buchanan (R-FL) introduced legislation that would make permanent and expand eligibility for the deduction of MI premiums from federal income taxes. USMI released a statement writing that the legislation “is smart public policy that benefits potentially millions of existing homeowners…Since 2007, the ability to deduct the cost of MI premiums has helped to put extra dollars back into the hands of millions of families each year and we strongly support legislation to make the tax deduction permanent.” MI deductibility has enjoyed broad bipartisan support, dating back to when the bill was originally introduced in 2005, and continues to have broad housing industry support, including from the Mortgage Bankers Association, National Association of Home Builders, National Association of REALTORS®, and National Housing Conference. National Mortgage News, DS News, Financial Regulation News and InsuranceNewsNet.com published articles on the proposed legislation that quote the bill’s sponsors and USMI.

USMI Submits Comment Letter for FHFA’s Proposed Amendments to the Enterprise Regulatory Capital Framework. On November 23, USMI submitted a comment letter on FHFA’s Notice of Proposed Rulemaking (NPR) on “Amendments to the Enterprise Regulatory Capital Framework (ERCF) Rule – Prescribed Leverage Buffer Amount and Credit Risk Transfer.” In its letter, USMI recommends that FHFA adjust the credit risk transfer (CRT) minimum risk weight floor to lower than 5 percent, consider alternative methods to determine the Prescribed Leverage Buffer Amount (PLBA), reduce the single-family risk weight floor to 10 percent or less, and make changes to the Countercyclical Adjustment. These recommendations are outlined further in USMI’s executive summary to the comment letter.

Most comments to the NPR support the proposed changes by FHFA to CRT and the PLBA. On the PLBA, many respondents note that the proposed changes would make the framework more risk-based and prevent the PLBA from being the typical binding requirement. On the proposed changes to reduce the minimum risk weight floor for CRT from 10 to 5 percent, most commenters generally supported the reduction and some suggested it be reduced or refined further. Most commenters also supported the removal of the overall effectiveness adjustment for CRT. In addition, many responses – including from insurance agency Guy Carpenter, Freddie Mac, and the Housing Policy Council – support reducing the single-family risk weight floor below the current 20 percent in the final rule. Further, several other organizations – including Urban Institute, Center for Responsible Lending, National Community Stabilization Trust, National Housing Conference, Consumer Federation of America, Leadership Conference and the National Association of REALTORS® – express concerns with the current Countercyclical Adjustment and recommend FHFA revisit this element within the final rule to ensure it will not have unintended consequences.

In a press release, USM President Lindsey Johnson is quoted saying, “We appreciate the work FHFA has undertaken to date to provide for minimum capital requirements for the Enterprises, including the December 2020 final rule to establish a post-conservatorship capital framework. While a robust framework is necessary to ensure the stability of the housing finance system, overly stringent requirements or ones that inaccurately reflect the risks of the assets held by the Enterprises can be disruptive. It is critical FHFA creates a capital framework that strikes an appropriate balance between maintaining borrowers’ access to affordable mortgage credit and ensuring the Enterprises and taxpayers are protected from risk.”

USMI Submits Comment Letter on FHFA’s Enterprise Equitable Housing Request for Input (RFI). On October 25, USMI submitted a comment letter to FHFA’s RFI on “Enterprise Equitable Housing Finance Plans” (the Plans), which articulates a framework by which the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, will be required to prepare and implement three-year plans to advance equity in housing finance. USMI writes in its letter that it “commends the FHFA for soliciting feedback on the Plans to identify the barriers to sustainable housing opportunities, set goals to address those barriers, and implement policies to address them. The private MI industry welcomes the opportunity to work with FHFA, the GSEs, and other housing finance stakeholders to support the Biden Administration’s goal of a comprehensive approach to advancing equity for all.” In its comment letter, USMI specifically recommends that FHFA review and reform loan-level price adjustments (LLPAs); review and revise the ERCF; modify the Preferred Stock Purchase Agreements (PSPAs); finalize the new products and activities rule; and provide greater data and transparency to address longstanding inequities in the housing finance system.

New Blog: Hidden Costs Harmful to Homeownership. In USMI’s latest blog on its 2021 National Homeownership Market Survey, we examined the way hidden or unanticipated costs impact homeownership. Home prices are increasing at historic levels and consumers expect both home prices and mortgage interest rates to increase over the next year. Sixty percent of respondents to the survey believe minorities face added homebuying costs because they tend to have lower credit and higher debt according to the survey. The survey also found that 60 percent of respondents believe reducing costs for low down payment homebuyers is the most important item for the homebuying process and 37 percent support cutting hidden costs on mortgages.

What We’re Reading. On December 2, Fannie Mae released a report titled, “Barriers to Entry: Closing Costs for First-Time and Low-Income Homebuyers,” which analyzed the costs associated with closing a mortgage loan and presented potential solutions to reduce certain closing costs for specific borrowers, where these additional costs may act as a barrier to homeownership. Based on a sample of 1.1 million conventional purchase mortgages acquired in 2020, Fannie Mae found that “median closing costs as a percent of home purchase price were 13 percent higher for low-income first-time homebuyers than for all homebuyers, and 19 percent higher than for non-low-income repeat homebuyers.”

Nominations We’re Watching. Julia Gordon, the nominee to lead the Federal Housing Administration, is still waiting on a full Senate vote. Meanwhile, the Senate Committee on Banking, Housing, and Urban Affairs on December 2 favorably reported via voice vote the nomination of Alanna McCargo to serve as the president of Ginnie Mae.

ICYMI: USMI Member Spotlight – Essent. In case you missed it, Essent Chairman and CEO Mark Casale was featured on our member spotlight. Casale shared his thoughts on Essent’s views on the housing market as we come out of the COVID-19 pandemic, the continued evolution of the private MI industry and the role of innovation, and how this evolution will better serve borrowers and the housing finance system. Read the full Q&A here.

Blog: Addressing the Increasing Costs of Homeownership

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Buying a home is the largest single investment most Americans will make, but during the last few years, that dream has become increasingly unreachable for a significant portion of the population as the housing market experiences strong home price appreciation (HPA) and historically low levels of supply. A recent Wall Street Journal article reported on this rising home price trend, outlining how mortgage payments can become unaffordable as a result. According to the Federal Reserve Bank of Atlanta, the median American household would need 32.1 percent of its income to cover mortgage payments on a median-priced home – the most since November 2008, when the same outlays would require 34.2 percent of income. Moreover, the Federal Housing Finance Agency’s (FHFA) 2021 Q3 House Price Index (HPI®) report indicates that house prices were up 4.2 percent compared to the second quarter of 2021, but the real surprise comes when you look over the one year period during which home prices climbed 18.5 percent.

With this in mind, it is no surprise that an increasing number of consumers (64 percent) believe it is a bad time for buying a home, according to Fannie Mae’s latest Home Purchase Sentiment Index (HPSI®). This is a dramatic change from a year ago when that rate stood at only 35 percent, a change driven by consumers’ sentiments that home prices (plurality at 45 percent) and mortgage rates (majority at 58 percent) will increase over the next 12 months.

This entire situation only serves to push the goal of owning a home further out of reach for many prospective first-time, minority, and low- to moderate-income (LMI) homebuyers. In addition, there are other fees and charges that potential homebuyers could incur, increasing the cost of homeownership for creditworthy borrowers throughout the country. In fact, USMI’s 2021 National Homeownership Market Survey, which polled 1,000 adults in the U.S., found that 60 percent of respondents believe minorities face added homebuying costs because they tend to have lower credit and higher debt.

Moreover, when asked about the priorities and reforms the housing finance industry should focus on, over 60 percent of respondents believe that reducing costs for low down payment homebuyers is the most important item for the home buying process, and 37 percent support cutting hidden costs on mortgages. Other issues respondents conveyed include:

  • Nearly 70 percent of respondents ranked the lack of affordable housing as the number one housing challenge and almost 60 percent stated that low housing supply is another top issue.
  • 61 percent of respondents want to eliminate added costs for low down payment homebuyers and 56 percent of respondents specifically support ending Loan-Level Price Adjustments (LLPAs), 2008-crisis era fees that disproportionately affect minority and first-time homebuyers.
  • 55 percent of respondents noted the importance of access to low down payment mortgages and the value of mortgage insurance (MI) to help borrowers qualify for mortgage financing.
  • 57 percent think credit scores need some or significant reform, driven by respondents’ view that credit score is the underwriting element that most impacts mortgage costs.

Many of the “hidden costs” that borrowers reference when purchasing a mortgage are not really “hidden,” but instead are costs that they may not have anticipated incurring as part of closing the loan. Last week, Fannie Mae released a report titled, “Barriers to Entry: Closing Costs for First-Time and Low-Income Homebuyers,” which finds “[i]n a sample of approximately 1.1 million conventional home purchase loans acquired by Fannie Mae in 2020, median closing costs as a percent of home purchase price were 13 [percent] higher for low-income first-time homebuyers than for all homebuyers, and 19 [percent] higher than for non-low-income repeat homebuyers.” The report also finds that “Black and white Hispanic low-income first-time homebuyers on average paid higher closing costs relative to purchase price than their white non-Hispanic or Asian counterparts […] For some low-income first-time homebuyers, closing costs can be particularly onerous.” Fannie Mae found that some of these “homebuyers had closing costs equal to or exceeding their down payment.” 

The FHFA released an Equitable Housing Finance Plans Request for Input (RFI) in September 2021, and the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, are required to submit Equitable Housing Finance Plans to FHFA by December 31, 2021. The plans will be in effect on January 1, 2022. USMI submitted its comment to the RFI in October. Given the private MI industry is one of the only forms of private capital available through market cycles and whose core business is focused on helping people without large down payments achieve affordable and sustainable homeownership, private MIs share the FHFA and GSEs’ view that the two pillars of good mortgage lending are sustainability and affordability. The goal should be a strong housing finance system that ensures equitable access to all mortgage-ready borrowers. USMI strongly supports efforts to remove barriers to homeownership and increase access and affordability, including for historically underserved households, while instilling sustainability for these same borrowers. The MI industry welcomes the opportunity to work with the FHFA, the GSEs, and other housing finance stakeholders to advance these goals.

Statement: Introduction of The Middle Class Mortgage Insurance Premium Act of 2021

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WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), released the following statement on the introduction of The Middle Class Mortgage Insurance Premium Act of 2021 sponsored by Reps. Ron Kind (D-WI) and Vern Buchanan (R-FL):

“Making permanent the ability of homeowners to deduct mortgage insurance (MI) premiums from federal income taxes and doing so in a way that makes this important tax deduction available to more hard-working middle class families, is smart public policy that benefits potentially millions of existing homeowners. Affordability remains a persistent barrier to homeownership across the country, particularly for first-time homebuyers. MI helps to sustainably bridge the down payment gap by helping families secure financing when they are unable to put 20 percent down. Low down payment mortgages, including conventional loans with private MI, have proven critical for millions of low- and moderate-income, first-time, and minority borrowers to buy a home sooner, secure financial stability, and build intergenerational wealth.

“Since 2007, the ability to deduct the cost of MI premiums has helped to put extra dollars back into the hands of millions of families each year and we strongly support legislation to make the tax deduction permanent. We are grateful to Congressmen Kind and Buchanan for their leadership on this critical legislation, and we encourage swift passage by both congressional chambers.”

In April 2021, USMI sent a letter to the Joint Committee on Taxation outlining how two key aspects of the current deduction diminish its effectiveness: (1) its temporary nature; and (2) its relatively low adjusted gross income (AGI) phase out. Congress first enacted legislation allowing the MI premiums tax deduction in 2006 and limited it to those making less than $100,000. In June, USMI then joined other housing industry groups, including the Mortgage Bankers Association, National Association of Home Builders, National Association of REALTORS®, and National Housing Conference, in sending a letter to the House Ways and Means Committee and Senate Finance Committee urging congressional tax writers to make this important deduction permanent. 

The tax provision on MI premiums has always been temporary, with extensions made every couple of years. Nearly 2.3 million Americans claimed the deduction in 2017 (the latest data available) with almost 60 percent of those taxpayers having less than $75,000 AGI and 90 percent with less than $100,000. In 2020, approximately 4.8 million families obtained mortgages with some form of MI, including conventional loans with private MI (over 2 million) and loans guaranteed though the Federal Housing Administration (nearly 1.4 million) and U.S. Department of Veteran Affairs (nearly 1.4 million).

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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.