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WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, submitted a comment letter in response to the Federal Housing Finance Agency’s (FHFA) Request for Input (RFI) on Fannie Mae and Freddie Mac’s (the government-sponsored enterprises or GSEs) Single-Family Mortgage Pricing Framework (the GSE Pricing Framework), which seeks to ensure the GSEs and taxpayers are adequately protected against potential losses while supporting affordable and sustainable homeownership.

“USMI welcomes the RFI as an opportunity to provide data, observations, and recommendations to inform FHFA’s work on policies and processes for the GSE Pricing Framework. As an association representing an industry that serves homebuyers with limited access to funds for large down payments, USMI fully supports Director Thompson’s consistent message that affordability and sustainability for borrowers and safety and soundness for the GSEs are not mutually exclusive. It is paramount that the GSE Pricing Framework be calibrated to best further the GSEs’ statutory mandates,” said Seth Appleton, President of USMI. “The approach used by the GSEs to estimate future returns on low down payment mortgages with private MI coverage systematically understates expected returns and does not fully recognize the risk mitigating and capital benefits of private MI, thereby leading the GSEs to charge higher upfront fees than may be necessary on this mission-critical segment of the mortgage market,” added Appleton.

USMI recommends that the FHFA’s oversight of the GSE Pricing Framework should be based on the following principles:

• Maximize responsible homeownership opportunities for all home-ready borrowers, including those lacking large down payments, while striving to balance the safe and sound operations of the GSEs and broader housing finance system.
• Account for the risk mitigating and capital benefits of private MI as strong GSE counterparties that stand in the first loss position, and recognize the full value of post-2008 enhancements to the industry through the updated Private Mortgage Insurer Eligibility Requirements (PMIERs), stronger Master Policy contractual language, expanded underwriting guardrails, and quality assurance refinements.
• Reflect the real expected returns to the GSEs from low down payment mortgages covered by private MI to more accurately price mortgage credit risk and eliminate duplicative fees for first-time, low- to moderate-income (LMI), and high loan-to-value (LTV) homebuyers without additional subsidy. To accomplish this, FHFA should assess the following potential adjustments: (i) Take a “life of borrower” view to address the fundamental understatement of GSE returns on high LTV mortgages; (ii) Reform the Enterprise Regulatory Capital Framework’s (ERCF) counterparty haircuts for PMIERs-compliant private MIs; and (iii) Reduce GSE capital requirements and expected losses in estimating returns to reflect significant post-2008 loss mitigation innovations.
• Promote a coordinated approach to government housing finance policy by closely collaborating with the U.S. Department of Housing and Urban Development (HUD) when reviewing and implementing changes to the GSE Pricing Framework to promote a consistent and coordinated approach to the federal government’s housing finance policy and prevent undue competition between government programs and the private sector.
• Utilize a transparent approval and implementation process with extensive stakeholder engagement to holistically assess risk management and affordability implications. Future changes to the GSE Pricing Framework should involve transparent processes that include a public comment period, targeted outreach meetings, and public forums with market participants and consumer advocate organizations.

“USMI and its member companies are dedicated to serving low down payment borrowers while simultaneously ensuring safety and soundness in the housing finance system. The private MI industry is a natural partner for FHFA and the GSEs to promote policies, including through the pricing of single-family mortgage credit risk, that support affordable and sustainable homeownership opportunities for home-ready borrowers. As the FHFA and Director Thompson continue to exercise oversight of the GSE Pricing Framework, USMI and its member companies look forward to working with the agency to ensure that processes and policies advance access, affordability, and safety and soundness in the housing market,” said Appleton.

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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.