Author: dcadmin

Article: Data confirms buyers don’t need to wait decades to save up to buy a home

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By Brad Shuster

June is National Homeownership Month, and this year we celebrate amidst a national conversation about how best to reform the U.S. housing finance system to sustain and grow homeownership in a safe and affordable way. This should excite all Americans who are currently seeking to become homeowners and all those who will in the future, because maintaining access to low down payment mortgages continues to be critically important for millions of Americans to realize the dream of homeownership.

Last year alone, more than one million Americans purchased or refinanced a home using mortgages with private mortgage insurance (MI). They were able to overcome the widely held misconception that buyers need a 20 percent down payment, an amount that would take the average American family more than 20 years to save. Of the more than one million families that used private MI in 2018, nearly 60 percent were first-time homeowners who on average saved only 5 percent of the home purchase price as a down payment. Private MI allowed these borrowers to access the conventional mortgage market with sustainable, affordable mortgage options. In Washington, policymakers are currently exploring ways to help even more households realize homeownership the same way.

A new report showcases how private MI helps hard-working, home-ready families who access the conventional mortgage market, even when they don’t have a large down payment. The report highlights that in 2018, more than 40 percent of buyers with private MI had annual incomes below $75,000, and that there were significant wait times for prospective homebuyers attempting to save for a full 20 percent down payment. The report also underscores the significant mortgage credit risk protection that private MI provides to American taxpayers and the federal government.

The report, released by the U.S. Mortgage Insurers (USMI), finds it could take on average 20 years for a family earning the national median income of $61,372 to save 20 percent (plus closing costs) for a $262,250 single-family home, the national median sales price. However, this drops to seven years if the borrower uses a low down payment mortgage with five percent down. This represents a 65 percent decrease in wait time at the national level, and USMI found the same percentage decrease at the state level.

Unfortunately, today millions of Americans nationwide believe homeownership is out of reach. While there are many reasons for prospective homeowners to perceive homeownership as unachievable, including student debt or low wage growth, the most pervasive misconception is that they need to have a 20 percent down payment, according to the National Association of REALTORS. That is simply untrue. There are a variety of mortgage options available that can help prospective borrowers buy homes with as little as 3 percent down – such as conventional loans with private MI and government-backed loans like those insured by the Federal Housing Administration (FHA). Each option offers something different and has advantages and disadvantages, but as the new USMI report shows, private MI provides a safe and affordable way to buy a home for millions of families.

It is important for policymakers to understand the long, time-tested role MI has played as they seek to create a more robust housing finance system. Private MI serves as protection against mortgage credit risk if a borrower defaults on their mortgage. This means that every dollar a mortgage insurer covers when a borrower defaults is a dollar that Fannie Mae and Freddie Mac (the “GSEs”) and American taxpayers do not have to pay. In fact, since the 2008 financial crisis the MI industry has paid over $50 billion in claims – losses the government and taxpayers did not have to bear.

As the conversation continues over how to best increase American homeownership – a cornerstone of the U.S. economy – and protect taxpayers and the federal government along the way, this report provides valuable facts for the policymakers and regulators engaged in these discussions. The private MI industry’s long history of success in helping Americans qualify for low down payment mortgages highlights its critical role in the housing finance system, and we stand ready to do more to create a stronger and more sustainable housing market.

This column was published in The Hill on June 13, 2019.

Blog: New Report Shows Saving 20 Percent to Buy a Home Takes 20 Years on Average; Over 1 Million Avoided the Wait in 2018 by Using Private Mortgage Insurance

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Texas, Florida, California, Illinois, and Ohio Round Out the Top Five States for Low Down Payment Mortgage Lending

WASHINGTON, June 5, 2019 — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, today released its annual report detailing low down payment insured mortgage lending in all 50 states and the District of Columbia. The report breaks down on a state-by-state basis low down payment mortgage lending with private MI, including the number of borrowers helped, the percentage of borrowers who were first-time homebuyers, average loan amounts, average FICO credit scores, and provides an analysis of how long it would take those borrowers to save for a 20 percent versus a five percent down payment.

“No, you do not need a 20 percent down payment to gain mortgage approval,” said Lindsey Johnson, President of USMI. “Our report underscores the critical role private MI plays in helping millions of first-time and middle-income homebuyers bridge the down payment gap across the United States. For over 60 years, private MI has helped provide Americans with affordable access to mortgage credit while also protecting taxpayers and the federal government from undue mortgage credit risk. Millions of borrowers have relied on private MI to responsibly purchase homes and MI will continue to facilitate the dream of homeownership going forward,” continued Johnson.

USMI finds that it could take 20 years for a household earning the national median income of $61,372 to save 20 percent (plus closing costs) for a $262,250 single-family home, the national median sales price. However, that wait time drops to seven years if the household purchases a home with a 5 percent down, where the loan is sustainably backed by private MI. This represents a 65 percent decrease in wait time at the national level, and USMI found the same percentage decrease at the state level.  

Since 1957, MI has helped more than 30 million families qualify for a mortgage. In 2018 alone, MI helped more than one million borrowers purchase or refinance a mortgage, nearly 60 percent of which were first-time homebuyers, and more than 40 percent had annual incomes below $75,000. The average loan amount purchased or refinanced with MI was $244,715 and the average FICO score for these borrowers was 741, compared to a 733 score for all home loan borrowers. The below table shows the top five states in which MI was used by borrowers to purchase or refinance homes in 2018.

 

State Number of Borrowers 
Helped with Private MI		 First-Time 
Homebuyers
Texas 89,738 57 percent
Florida 77,565 56 percent
California 71,996 69 percent
Illinois 48,200 65 percent
Ohio 43,761 59 percent

 

In addition to the findings on how MI helps borrowers qualify for low down payment mortgages, the report also highlights the role MI plays in reducing the federal government’s, and therefore U.S. taxpayers’, exposure to mortgage credit risk. Private MI serves as credit protection against mortgage credit risk in the event a borrower defaults on his or her mortgage, meaning every dollar that an MI company covers when a borrower defaults on his or her mortgage is a dollar that the GSEs and taxpayers do not have to pay. In fact, since the 2008 financial crisis the MI industry has paid over $50 billion in claims – losses the government and taxpayers did not have to bear.

“The fact that private mortgage insurance has been helping Americans qualify for low down payment mortgages for more than six decades is a testament to the important access, stability, and credit protection the MI industry brings to the housing finance system,” added Johnson. “In recent years, the private MI industry has become even stronger with more robust underwriting standards, stronger capital requirements, and improved risk management. The industry is well-positioned to continue its important work, and we look forward to further helping grow American homeownership.”

The complete report on MI in the U.S. is available here, along with all 50 state fact sheets and data for the District of Columbia.

Statement: U.S. Senate’s Confirmation of Mark Calabria as New Director of Federal Housing Finance Agency

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WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate’s confirmation of Dr. Mark Calabria as the Federal Housing Finance Agency (FHFA) Director:

“USMI applauds the Senate’s confirmation of Director Mark Calabria to serve as the next FHFA Director. Fannie Mae and Freddie Mac (the ‘GSEs’), the 11 Federal Home Loan Banks, market participants, and American homebuyers will be well-served under Director Calabria’s leadership at this critical time in the housing finance system.

“Director Calabria’s deep understanding of the mortgage finance system will be invaluable in promoting a more robust housing market that provides borrowers with access to affordable low down payment mortgage credit while simultaneously protecting taxpayers from undue mortgage credit risk. Director Calabria has long been an advocate for greater taxpayer protection against mortgage credit risk, including the use of private mortgage insurance (MI) to shield taxpayers and the federal government from financial risk on low down payment lending. We are confident that Director Calabria will continue to recognize the importance of private MI in the housing finance system.

“We look forward to working closely with Director Calabria to ensure that homebuyers continue to have affordable and prudent options for low down payment mortgage finance credit while also protecting taxpayers. For more than 60 years, private mortgage insurers have played a leading role in promoting affordable and sustainable homeownership and we look forward to building upon this important mission in the future.”

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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: April 2019

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It has been a busy week in Washington with renewed attention on housing finance reform in both Congress and the Administration. This week, the Senate Banking Committee (SBC) held two hearings on Chairman Mike Crapo’s (R-ID) Housing Reform Outline, where USMI President Lindsey Johnson appeared as an expert witness on the second day of hearings. Prior to testifying at the hearing, Johnson published a blog on the importance of private mortgage insurance (MI) to borrowers and taxpayers in any reformed housing finance system. On the other side of Capitol Hill, House Financial Services Committee (HFSC) Chairwoman Maxine Waters (D-CA) announced the Committee’s hearings for the first two weeks of April, several of which will address affordable housing. On Pennsylvania Avenue, President Donald Trump signed a memorandum initiating housing reform in the housing finance system. There were also developments at the Federal Housing Administration (FHA) and Fannie Mae and Freddie Mac (the GSEs). The FHA told lenders this month that it is tightening standards on government-backed mortgages due to concerns of increasingly risky loans, while the GSEs both appointed new chief executive officers.

  • USMI’s President testifies before the Senate Banking Committee. This week, the SBC held two hearings to discuss Chairman Crapo’s Housing Reform Outline. USMI President Lindsey Johnson testified before the committee on the second day of hearings, addressing the Chairman’s Outline and discussing the role private MI can play in a reformed housing finance system. USMI’s testimony specifically outlined the consistencies between Chairman Crapo’s Outline and USMI’s own principles, including ensuring access for creditworthy borrowers and all lenders, increasing transparency, and protecting taxpayers. Johnson also made several recommendations before the committee, chief among them that any proposal should rely on loan-level credit enhancement at origination done by entities that can manage mortgage credit risk through all market cycles.
  • During the hearing, Sen. Doug Jones (D-AL) brought up the issue of down payments and how Americans are in many cases unable to save enough to buy a home, and specifically asked what can be done about the problem and what are models out there for down payment assistance programs. Johnson answered Sen. Jones, saying, “We think that that is an enormous challenge; it’s specifically what our industry is focused on – is bridging that gap between an individual bringing 20 percent to the closing table and actually having access to the conventional market. And you think about the time that it takes for that individual to save that down payment, we’ve tracked that data and we’ve found that it takes two decades for a firefighter, a teacher in many areas to save that up. For minorities, we know that it’s even longer. So, we really have to make sure there are low down payment options available in the market.”

  • Following Johnson’s remarks, President Elect of the National Association of REALTORS® Vince Malta also noted the importance of MI, stating, “There are vehicles out there that can assist with lower down payment loans that are working very well in the marketplace, a combination of private capital through MI and sound underwriting standards. Those are the guides to homeownership.” The hearings demonstrated a near universal opposition to recapitalizing and releasing the GSEs, an action that Sen. Mark Warner (D-VA) characterized as “recreat[ing] the old status quo and it doesn’t make a lot of sense.” Further, there was broad support among the witnesses for restructuring the GSEs as highly regulated utility-like entities to increase transparency, limit the GSEs’ activities to secondary market functions, and ensure that certain protections—such as equitable pricing for lenders of all sizes and types—are maintained.  The full list of witnesses and their testimonies can be found here.
  • USMI releases blog on importance of MI in the housing finance system. USMI President Lindsey Johnson published a blog this week ahead of the SBC hearings on Chairman Mike Crapo’s Housing Reform Outline that highlights the critical role private MI plays in housing finance reform, with particular emphasis on how private MI benefits homebuyers and protects taxpayers. The blog states that with the recent activity in the housing reform debate, now more than ever private MI will continue to play its invaluable role in providing access to credit and unparalleled taxpayer protection.
  • President Trump signs memorandum initiating reform of the housing finance system. On March 27, President Trump signed a memorandum calling for relevant agencies to develop a reform plan for the housing finance system. According to the memorandum, these reforms will seek to end the conservatorship of the GSEs and improve regulatory oversight over them, promote competition in the housing finance market, create a system that encourages sustainable homeownership, and protect taxpayers against bailouts. The Secretary of the Treasury Steven Mnuchin and Secretary of Housing and Urban Development Ben Carson will be tasked with addressing their respective issues and are expected to submit reform plans as soon as practicable. In the fall of 2018, USMI released Areas of Alignment for Administrative Reformthat highlighted a number of specific steps the Administration can and should take before allowing the GSEs to build capital and be released from conservatorship.  A list of the 11 specific steps can be found here. 
  • House Financial Services Committee Chairwoman releases early April hearing schedule. HFSC Chairwoman Waters published the Committee’s calendar of hearings for the first two week of April, three of which will focus on housing. One of the hearings, entitled “The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing,” will be with the full committee. The other hearings, one entitled “The Affordable Housing Crisis in Rural America: Assessing the Federal Response” and another entitled “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining,” will be with the Subcommittee on Housing, Community Development and Insurance and Subcommittee on Consumer Protection and Financial Institutions, respectively.
  • FHA tightens underwriting standards on government-backed mortgages. In an about-face for a 2016 decision, the FHA has decided to tighten its underwriting and lending standards due to concerns that it is allowing too many risky loans to be insured. The FHA has observed extensive risk layering in recent years and this action is intended to ensure the FHA’s financial stability for years to come. According to the Wall Street Journal, the FHA “told lenders this month it would begin flagging more loans as high risk. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to their incomes, will now go through a more rigorous manual underwriting process…” The FHA stated in its letter that the “announcement comes after Federal Housing Commissioner Montgomery publicly stated numerous times in recent months that FHA must seek the right balance between managing risk and fulfilling its mission of supporting sustainable homeownership.”
  • Fannie and Freddie announce newly appointed CEOs. Both Fannie Mae and Freddie Mac have announced the appointments of their new CEOs following their individual six-month searches. Fannie Mae appointed as its CEO commercial mortgage executive Hugh Frater, who joined Fannie’s board of directors in 2016 and served as interim CEO for several months after Tim Mayopoulos stepped down in October 2018. Meanwhile, Freddie Mac’s board of directors named its current president David Brickman as its new CEO, succeeding Donald Layton, who will retire in July. Brickman was promoted to president in September 2018 and has been with Freddie Mac since 1999.

Letter: Coalition Letter in Support of the Nomination of Mark Calabria

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The Honorable Mitch McConnell
Majority Leader
United States Senate
S-230, U.S. Capitol
Washington, DC, 20510

The Honorable Chuck Schumer
Minority Leader
United States Senate S-221, U.S. Capitol
Washington, DC 20510

Dear Majority Leader McConnell and Leader Schumer:

The undersigned organizations, representing a wide range of perspectives in the housing and mortgage finance industry, write to strongly encourage the confirmation of Dr. Mark Calabria as Director of the Federal Housing Finance Agency (FHFA).

A longtime public servant, Dr. Calabria is a respected expert in housing finance with detailed knowledge of the intricacies of the housing and mortgage finance markets. As one of the Congressional staffers who helped craft the Housing and Economic Recovery Act of 2008, Dr. Calabria has demonstrated a keen understanding of the critical role of the FHFA as both regulator and conservator of Fannie Mae and Freddie Mac (the “Enterprises”). Additionally, through his experience as a staffer on the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and at the National Association of REALTORS®, National Association of Home Builders, and the U.S. Department of Housing and Urban Development, Dr. Calabria understands the need for FHFA to be transparent and methodical in its development and enforcement of policies.

The FHFA has an incredibly important mission of ensuring for a liquid and robust mortgage market, while regulating the Enterprises and their $5.4 trillion in mortgage credit risk, along with the Federal Home Loan Bank system.1 It is critical for the Senate to proceed expeditiously to confirm a permanent Director at the FHFA in order to best promote an efficient national secondary mortgage market that facilitates access to affordable mortgage financing for all creditworthy borrowers during all market conditions. Dr. Calabria recognizes the need to balance this mission with the protection of taxpayers from mortgage credit risk while avoiding market disruptions when improving and implementing policy. Any new Director should also maintain increased transparency with essential public feedback to guarantee that any potential changes are in the best interests of consumers, the supporting industries, and the overall economy.

Dr. Calabria has a deep understanding of the secondary mortgage market and the complex policy issues that affect the entities the FHFA oversees. Dr. Calabria’s decades of experience in the public and private sectors have prepared him to execute the duties of Director and address the agency’s mission and significant regulatory priorities.

We respectfully request the swift confirmation of Dr. Calabria as Director of the FHFA to protect and ensure the continuation of a strong real estate market and overall economy.

Sincerely,

American Academy of Housing and Communities
American Land Title Association (ALTA)
The Commercial Real Estate Finance Council (CREFC)
Community Associations Institute
Consumer Mortgage Coalition
Leading Builders of America
Make Room
Manufactured Housing Association for Regulatory Reform (MHARR) Manufactured Housing Institute
Mortgage Bankers Association
Nareit
National Affordable Housing Management Association
The National Apartment Association
National Association of Home Builders
The National Association of Housing Cooperatives
National Association of REALTORS®
National Council of State Housing Agencies
National Leased Housing Association
National Multifamily Housing Council
The Real Estate Roundtable
Real Estate Services Providers Council, Inc. (RESPRO)
The Realty Alliance
U.S. Mortgage Insurers

cc: United States Senate

For a full PDF of this letter click here.

Blog: Private Mortgage Insurance Plays a Critical Role Housing Finance Reform

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By Lindsey D. Johnson

 

The year 2019 is already shaping up to be significant for the debate on the future of the housing finance system. With the Administration’s pick for Federal Housing Finance Agency (FHFA) Director Mark Calabria likely to be confirmed in the coming weeks, there has been a renewed focus on the futures of Fannie Mae and Freddie Mac (the GSEs) and the need for reforms. Just last month, Senate Banking Committee Chairman Mike Crapo (R-ID) released an outline on housing finance reform. House Financial Services Committee Chairwoman Maxine Waters (D-CA) has also detailed her legislative priorities, which includes housing reform and a particular focus on affordable housing issues. U.S. Mortgage Insurers (USMI) agrees with Chairman Crapo, Chairwoman Waters, and other policymakers who continue to see the need for meaningful reforms to address structural concerns at the GSEs. While the Administration can take steps to provide the necessary oversight of and enhancements to the GSEs, structural reform must be done by Congress.

This week, I will join other witnesses to testify on behalf of USMI on Chairman Crapo’s outline for housing finance reform and will specifically highlight the important role that private mortgage insurance (MI) plays each day to help middle-income and first-time buyers to become homeowners despite modest down payments. Not only does private MI help to provide access to mortgage credit for American homebuyers, but it also provides important protections for the overall mortgage finance system, which translates to protections for the federal government and taxpayers. Here is why private MI serves a valuable role.

 

MI Helps Low Down Payment Homebuyers

 

Private MI is a time-tested way to help borrowers qualify for low down-payment home financing.  Research by the National Association of REALTORS® shows that Americans continuously cite saving for a down payment as one of the biggest hurdles for attaining homeownership and first-time homebuyers on average have a down payment of seven percent. Private MI helps bridge the gap for many borrowers to attain homeownership sooner than they otherwise would. In fact, for the past three years, private MI has been the leader in the total insured market to provide borrowers with to access to low down payment mortgage financing. All told, for over 60 years private MI has helped nearly 30 million families nationally purchase or refinance a home, with more than one million borrowers alone in 2018. Of those borrowers, nearly 60 percent of purchase loans went to first-time homebuyers and more than 40 percent of borrowers with MI had annual incomes below $75,000.

 

MI Protects Taxpayers and Government from Risk

 

Private MI not only provides affordable access to credit for homebuyers, but it also plays a critical role in protecting U.S. taxpayers from mortgage credit risk in the event of borrower defaults. Private MI serves as the first layer of protection in the conventional mortgage market against defaults that may occur on GSE-purchased mortgages. Private MI attaches to a loan the day that the loan is originated, which means that even before the lender might sell the mortgage into the GSE-backed secondary market, it is protected by private capital and therefore doesn’t directly expose the government. In this regard, when it comes to insuring low down payment mortgages, MI serves as a “second pair of eyes” on that risk. This helps ensure borrowers are placed into sustainable homeownership and adds an additional layer of protection in the mortgage finance system. This loan-level credit enhancement that attaches to the loan at origination is a feature that should be maintained in a future housing finance system.

Mortgage insurers have strong incentives to actively manage this mortgage credit risk because when a conventional-insured mortgage defaults, private MI bears the first layer of financial loss (on average 25 percent of the mortgage value). This structure of MI protection has been effective and, according to the Urban Institute, for GSE “30-year fixed rate, fully documented, fully amortizing mortgages, the loss severity of loans with private MI is 40 percent lower than that without, despite the higher Loan-to-Value of mortgages with private MI.”

It’s been over 10 years since the 2008 financial crisis, which prompted the federal government to place the GSEs into conservatorship. Comprehensive housing finance reform is long overdue and as Congress and the Administration move forward with this important work, private MI looks forward to continuing to play its invaluable role in providing access to credit and unparalleled taxpayer protection.

Blog: Want to Buy a Home? Do the Math

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It is a common misconception that a 20 percent down payment is required to buy a home. Advice to wait and save a large down payment is often based on the theory that the cost of mortgage insurance (MI), which is required when you buy with a smaller down payment, should be avoided. This may not be the best advice and is, in fact, not in line with market trends, considering the median down payment for first-time homebuyers is 7 percent, according to the National Association of Realtors.

Yes, you can qualify for a conventional mortgage with a down payment as small as 3 percent of the purchase price. It is also true that you can reduce your monthly mortgage payment by paying for discount points at closing, but that can be 5 or 10 percent of the purchase price — not 20. And because every buyer’s situation is unique, it’s important to do the math. In today’s market, it could take a family earning the national median income up to 20 years to save 20 percent, according to calculations by U.S. Mortgage Insurers using a methodology developed by the Center for Responsible Lending; a lot can change during that time, in the family’s personal finances and in overall mortgage market trends.

How can buying now save you money later?

Consider you want to purchase a $255,000 home. A 5 percent down payment is $12,750 versus $51,000 in cash for 20 percent down. With a 740 credit score at today’s MI rates, your monthly MI payment would be about $110, which is added to your monthly mortgage payment until MI cancels. MI typically cancels after five years; therefore, you will only have this added cost for a short period of time versus waiting an average of 20 years to save for 20 percent.

With home price appreciation, today’s $255,000 home will likely cost more in the years ahead and this will also have an impact on the necessary down payment and length of time required to save for it. There are other variables in the equation too, such as interest rates. As federal rates rise from their historic lows, so too will the costs associated with financing a mortgage. The savings a borrower might calculate today could be altogether negated by waiting even a few more years. Another factor is that rents are on the rise across the nation, leading to a reduced capacity for many would-be homebuyers to save for larger down payments.

If you decide to buy today with a low down payment mortgage that has private MI, keep in mind that the monthly MI payments are temporary and go away, lowering the monthly payment over time. Again, private MI typically lasts about five years as it can be cancelled once a homeowner builds approximately 20 percent equity in the home through payments or appreciation and automatically terminates for most borrowers once he or she reaches 22 percent equity. Importantly, the insurance premiums on an FHA mortgage — a 100 percent taxpayer-backed government version of mortgage insurance — cannot be cancelled for the vast majority of borrowers.

So, do the math and let the numbers guide you. There are many online mortgage calculators that can help. Check out lowdownpaymentfacts.org to learn more.