Author: dcadmin

Statement: Luetkemeyer – McHenry Letter to FHFA Director Watt

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For Immediate Release

December 2, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Luetkemeyer – McHenry Letter to FHFA Director Watt

 

Statement by Lindsey Johnson, President and Executive Director of USMI

“Today, Representatives Blaine Luetkemeyer and Patrick McHenry sent a letter to Federal Housing Finance Agency Director Watt ‘regarding the transactions that Fannie Mae and Freddie Mac (the Enterprises) enter in order to share mortgage credit risk with private market participants.’ According to the letter, ‘[w]hile we strongly support these transactions as a mechanism for mitigating credit risk to the Enterprises and U.S. taxpayers, we are concerned that the focus for these transactions has been too heavily concentrated on back-end credit risk sharing. Accordingly, in order to expand the scope of risk sharing and to avoid favoring one approach to risk sharing over another, we believe that the Federal Housing Finance Agency (FHFA) should require the Enterprises to also explore and engage in diverse forms of front-end credit risk sharing.’

USMI members applaud Representatives Luetkemeyer and McHenry, Chair of the House Financial Services Committee’s Housing and Insurance Subcommittee and House Financial Services Committee Vice Chairman, respectively, for their leadership and advocacy on this important issue.

In advance of the upcoming release of FHFA’s 2016 Scorecard, taxpayers still face significant exposure to losses from another housing downturn. Front-end risk share transactions transfer the risk of loans before they ever reach the GSE’s balance sheets. As outlined in the letter, the benefits of front end risk sharing are clear. USMI agrees that there should be a greater balance between front and back end credit risk transfers. Of the several ways that the GSEs can conduct front-end risk share transactions, using MI on the front end is one of the easiest, most readily available forms that would be accessible to a vast majority of lenders today.

Momentum is growing to expand front end risk sharing with MI, and USMI members are ready to do more to de-risk the housing finance system while enhancing homeowners’ ability to borrow in an affordable way.”

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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.

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Article: Risk Sharing Transactions: Front End vs. Back End

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USMI president Lindsey Johnson recently sat down for a Q&A discussion on risk sharing with DS News. Below is a portion of her discussion.

Lindsey Johnson currently serves as U.S. Mortgage Insurers (USMI) President and Executive Director. Johnson previously served as a Director on PwC’s public policy team, where she engaged policymakers on key public policy issues that impacted the firm. Prior to joining PwC, Lindsey was a former member of the Senate Banking Committee staff as the Minority Staff Director for the Senate Banking Committee’s National Security and International Trade and Finance (NSITF) Subcommittee, and served as Senior Policy Advisor to Senator Mark Kirk (R-Illinois), focusing on noteworthy banking, housing finance reform, and insurance legislation.

What is the difference between front-end risk sharing and back-end risk sharing?

The biggest difference is the fact that upfront risk sharing transactions de-risk the GSEs, or transfer the credit risk from the loans, before they hit the GSE’s balance sheets. Back-end CRTs require the GSEs to warehouse that risk for a period of time, and the GSEs decide what credit risk they’re going to offlay and who the counterparties will be. USMI members have done both, so we would not say that back-end transactions are bad. We actually are very supportive. However, one of the drawbacks or distinctions between the two, specifically back-end CRTs, is that the risk is on the balance sheets on the GSEs is subject to credit swings, which is partially what happened with the widening of the credit spreads at Freddie Mac last month when they experienced a loss.

Other challenges and drawbacks to the back-end transactions is that there is not a lot of pricing transparency to date. Also, smaller institutions have not been able to participate in the transactions. Front-end transactions provider a lot greater pricing transparency and can be accessible for the vast majority of lenders of all types and sizes, so that’s one of the benefits of front-end transactions.

Why do you think the GSEs have engaged in mostly back-end risk sharing to this point?

The FHFA reported in their white paper back in August that since 2012, the GSEs have purchased approximately $3 trillion in mortgage loans, of which just over around 20 percent of the loans—about $667 billion in unpaid principal balance—has been transferred via riskshare, but out of that, less than 1 percent of the risk has been transferred via front-end risk sharing. I think part of the reason, and it’s pretty understandable if this is the case, is that the GSEs can control the process in the entire back-end transfer process. Especially when you consider early versions of STACR (Structured Agency Credit Risk) and CAS (Connecticut Avenue Series) transactions, where they were really designed to move large portions of unexpected loss from the GSEs balance sheet, it makes sense because they were experimenting in the beginning.

Today, the GSEs are a lot better at risk transfer. The products and the markets themselves have started to evolve, and the GSEs are starting to transfer both expected loss and catastrophic loss. The products have evolved and the market players themselves are able to transfer this risk pretty seamlessly. It’s becoming a part of their everyday routine. So at least in the beginning, it seems, they were experimenting and trying to control the entire process.

Now that we have a much better sense of how this works operationally and how credit risk transfer can work both on the back end and the front end, I think we should start focusing on transactions that are scalable and repeatable just as FHFA continues to say they want to do. Also, they should lay the groundwork for a system that is accessible to a majority of market players. It doesn’t make sense to return to a system that advantages some market players over others. Knowing that comprehensive housing finance reform isn’t coming in the near term, we think it’s imperative that FHFA and the GSEs adhere to principles that nearly every industry and consumer group, as well as policy makers, have said are really critical to the housing finance system going forward. They need to begin laying the groundwork now. Those principles are very broad, of course: having greater private capital, which they are very focused on; greater transparency on pricing, and demonstrating the impact to the borrower; and then equitable access for smaller lenders, and lenders of all sizes and types in mortgage finance. So having a greater balance of front-end transactions is something that we are really pushing FHFA and the GSEs to experiment with in 2016.

To read the entire Q&A discussion with USMI president Lindsey Johnson click here

Statement: Highway Bill Passage

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For Immediate Release

December 1, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Highway Bill Passage

Statement by Lindsey Johnson, President and Executive Director of USMI

“USMI applauds the conference agreement for a multi-year surface transportation authorization bill, one that importantly continues to reject the use of mortgage credit risk guarantee fees (g-fees) charged by the housing finance enterprises, Fannie Mae and Freddie Mac, as a source to finance the extension of federal highway programs.

USMI members are grateful that Congress refrained from adding an additional fee to mortgages for unrelated expenses, which would pose undue and unnecessary costs to current and future homeowners.”

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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.

 

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Statement: MBA Letter to FHFA Director Watt

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For Immediate Release

December 1, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on MBA Letter to FHFA Director Watt

Yesterday, the Mortgage Bankers Association (MBA) sent a letter to FHFA Director Mel Watt urging action to reduce the continued taxpayer risk exposure posed by the housing GSEs, Fannie Mae and Freddie Mac. The letter specifically calls on the FHFA to require greater use of up-front risk sharing by the GSEs, particularly with deeper private mortgage insurance (MI) coverage, to de-risk loans before they are acquired by the GSEs.

MBA President and CEO Dave Stevens highlighted the “imperative that the GSEs reduce their retained risk in order to avoid any increase in taxpayers’ investment in the enterprises,” and stated that “multiple forms of up-front risk sharing should be piloted including deeper cover mortgage insurance (MI).” Stevens goes on to say that risk sharing “should not advantage certain lenders relative to others” and that “[the MI] approach would be operationally easiest for the vast majority of lenders.” In addition, the MBA letter detailed reasons why the MI industry is such a reliable counterparty and well positioned to bear additional housing finance risk.

USMI could not agree more. The MI industry has covered more than $50 billion in claims to the GSEs since the beginning of the financial crisis, resulting in substantial taxpayer savings. USMI member companies never stopped paying claims, and never stopped writing new coverage. MIs are subject to rigorous new capital and operational standards under the Private Mortgage Insurer Eligibility Requirements (PMIERs) issued by the GSEs with oversight by FHFA. The MI industry has attracted billions in new capital since the crisis, and is well positioned to raise even more. Further, as of October 2014, MIs operate under new master policy agreements, which provide assurances about the consistent handling and payment of mortgage insurance claims and bring greater transparency and clarity to contractual protections for lenders and investors.

We look forward to working with FHFA, the GSEs and lenders of all sizes in making progress towards a more sustainable housing finance system that is less risky for taxpayers, while ensuring access to creditworthy borrowers.

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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.

 

Download as PDF

Statement: Status and Solvency Of the FHA Insurance Fund

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For Immediate Release

November 16, 2015

Media Contacts

Robert Schwartz 202-207-3665 (rschwartz@rasky.com)

USMI Statement on Status and Solvency Of the FHA Insurance Fund

Today, the Federal Housing Administration (FHA) reported on the status of the FHA Mutual Mortgage Insurance Fund (Fund), which has been below the statutory 2% minimum capital ratio since 2009. Consistent with the general credit improvement regarding residential mortgages, the Fund met the minimum standard.

USMI President and Executive Director Lindsey Johnson stated: “We welcome the progress made, but caution against a false sense of security from today’s report. It is a reminder of continued taxpayer exposure to more than $1 trillion in FHA insured mortgage credit risk. The MI industry and FHA should serve as complementary ways to promote sustainable homeownership. But to do that, FHA still needs to become more financially resilient in line with the rest of the financial system, and remain focused on its core mission of serving underserved communities.”

The Fund’s current capital ratio is noteworthy because the amount of capital held relative to risks assumed has been increased in other parts of the housing finance system, but not at FHA. Updated Private Mortgage Insurance Eligibility Requirements (PMIERs)—stress-tested financial requirements developed by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency—significantly increased claims paying capacity and capital for the MI industry. Unlike other financial entities under Dodd Frank, Federal Reserve requirements, and PMIERs, the FHA 2% minimum capital ratio has not been increased and is not subject to stress testing. For this reason, analysts such as Mark Zandi have recommended a substantial increase in FHA’s minimum capital ratio to 4.5% to reflect lessons learned from the financial crisis.

Accordingly, USMI is calling for reforms to the FHA capital standard. USMI encourages policymakers to increase the Fund’s minimum capital ratio to reduce the chances of a taxpayer bailout in future market downturns, and to stress test those levels to ensure the Fund’s financial position is more consistent with the risks assumed.

Click here for a comparison of private mortgage insurance and FHA insurance.

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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.

 

Download as PDF

Comment Letter: USMI Joins Coalition on Highway Bill Funding

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(November 10, 2015) In a letter to conferees on the pending highway bill, USMI joined a broad coalition of 27 housing organizations in urging conferees to draw funds from the Federal Reserve’s surplus, rather than using GSE G-fees, to pay for the extension of the Highway Trust Fund.

The full text of the letter can be found here

Press Release: New Analysis Demonstrates How Greater Front End Risk Sharing with MI Reduces GSE and Taxpayer Exposure, Benefits Borrowers

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For Immediate Release

October 19, 2015

Media Contact

Robert Schwartz 202-207-3665 (rschwartz@prismpublicaffairs.com)

New Analysis Demonstrates How Greater Front End Risk Sharing with MI Reduces GSE and Taxpayer Exposure, Benefits Borrowers

U.S. Mortgage Insurers (USMI®) today released a new study demonstrating how housing finance risks can be significantly reduced for the housing finance Government Sponsored Enterprises (GSEs) and taxpayers, while maintaining access to homeownership with improved borrower economics, through greater use of private Mortgage Insurance (MI).

Among the key findings of “Analysis of Deep Coverage Mortgage Insurance,” prepared by Milliman, Inc., covering additional mortgage credit risk with MI:

  • Almost doubles the amount of loss protection afforded to the GSEs;
  • Would allow the GSEs to reduce their committed capital for this risk by approximately 75%, resulting in lower GSE guarantee fees (G-Fees); and
  • Reduces borrower costs by an average of $8 per month or approximately $2,300 over the average life of the loan.

 

USMI commissioned Milliman, Inc., an independent consulting and actuarial firm, to conduct a third-party proof-of-concept of a proposal to deepen MI coverage down to 50% of the value of the home, using publicly available GSE information.

The Milliman report comes as policymakers are considering proposals to de-risk the GSEs through greater reliance on private capital, such as expanded up-front risk sharing using private MI.  Up-front risk sharing with MI shifts the risks away from taxpayers right at the time individual loans are made and before the risk gets to the GSEs.  MI is a first layer of credit protection for investors and a time tested method of risk sharing that has been used on low down payment loans for more than 50 years.

“As the GSEs enter the seventh year under conservatorship, taxpayers still face significant exposure to losses from another housing downturn,” said Rohit Gupta, President and CEO of Genworth Mortgage Insurance and Chair of USMI.  “The housing finance system needs to be put on a more sustainable footing, with the private sector bearing more of the risks of another housing downturn so the taxpayers don’t have to, and Americans continue to have access to prudent and affordable mortgage credit.”

“Promotion of greater front end risk sharing with MI is a way to help build a stronger and more sustainable housing finance system, while ensuring the homeownership aspirations of Americans for years to come.  In light of the Milliman analysis, USMI will be working with interested parties to encourage concrete steps to expand front end risk sharing with MI.  The time is right to move forward to expand front end risk sharing with MI, and USMI members are ready to do more,” said Gupta.

“This analysis shows risk exposure to the GSEs can be reduced with deep coverage MI,” said Ken Bjurstrom, Principal at Milliman and author of the study.  “It also documents the potential for savings to borrowers by substituting a portion of the current G-Fee requirements with premiums from deep MI coverage.”

MIs are reliable counterparties to bear housing finance risks, covering more than $50 billion in GSE claims since conservatorship, resulting in substantial savings to taxpayers.  New master policies provide better clarity on claims, and new financial requirements (Private Mortgage Insurer Eligibility Requirements, or PMIERs) ensure that MIs have adequate liquidity and claims-paying capacity during periods of stress.  MIs have also attracted billions in new capital from diverse sources.

The full Milliman report is available at https://www.usmi.org/wp-content/uploads/2015/10/Milliman-Report-Analysis-of-Deep-Coverage-MI-FINAL.pdf

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About USMI

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.

Download as PDF

Lindsey Johnson, President

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Lindsey Johnson currently serves as President of USMI. USMI is the nation’s leading private mortgage insurance association, comprised of five of the six U.S. mortgage insurance companies in the country. As President of USMI, Lindsey works with member companies to advance the value of private mortgage insurance (MI) to borrowers and taxpayers and to promote a sustainable housing finance system backed by private capital.

Lindsey previously served as a Director on PwC’s public policy team. Prior to joining PwC, Lindsey was a former member of the Senate Banking Committee staff as the Republican Staff Director for the Senate Banking Committee’s National Security and International Trade and Finance (NSITF) Subcommittee, and as a Senior Policy Advisor to Senator Mark Kirk (R-Illinois), focusing on noteworthy banking, housing finance reform, and insurance legislation.

Lindsey also served as Director for the Federal Home Loan Bank of Atlanta for seven years, representing the Bank in D.C. at the highest levels of government during several key legislative reforms that impacted the Bank including the Housing and Economic Recovery Act of 2008 and Dodd-Frank Act.

Lindsey began her career in D.C. working with former House Republican Conference Chair J.C. Watts in the private sector. She received an MBA from Georgetown University. Lindsey also serves as a Director on the Board, and immediate past-president of Women in Housing and Finance (www.whfdc.org), is a Director on the Board for Habitat for Humanity Northern Virginia, and an Advisory Board Member for the Georgetown University McDonough School of Business Advisory Committee.

Letter: Opposition Builds Against Using Mortgage G-Fees to Fund Highway Bill

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(September 17, 2015) This week, in a joint letter to the bipartisan Congressional leadership, USMI and a diverse coalition of thirty-two housing organizations reiterated their opposition to using the mortgage credit risk guarantee fees (g-fees) charged by the housing finance enterprises, Fannie Mae and Freddie Mac, as a source to finance extension of federal highway programs.  The letter states: “increasing g-fees for other purposes… imposes an unjustified burden on the housing finance system.”  “Adding an additional fee to mortgages for unrelated expenses would only increase the hurdles these families already face in achieving the American dream of homeownership”, it continues.

The full text of the letter can be found here

Statement: Mortgage Insurance Tax Deduction for Low and Moderate Income Homeowners Increases Average Deduction per Return Also Rises in 2013 According to New IRS Data

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(September 10, 2015) According to new data released by the Internal Revenue Service (IRS), approximately 4.7 million taxpayers benefited from a deduction for private Mortgage Insurance (MI) in 2013, up from 4.1 million in 2012.  Of the taxpayers that took the deduction for private MI, 82% of them had adjusted gross incomes between $30,000 and $100,000 and the average amount per return rose to $1,387 in 2013, up from $1,304 in 2012.  The total estimated net tax benefit topped $900 million, up from approximately $750 million in 2012.

“Mortgage insurance is helping millions of middle income families achieve homeownership,” said Rohit Gupta, President and CEO of Genworth Mortgage Insurance and Chair of U.S. Mortgage Insurers (USMI).  “Congress has recognized that MI premiums are the economic equivalent of mortgage interest and should be deductible from federal income taxes in a similar manner.  We urge Congress to ensure this important provision of the tax code is extended.”

On December 17, 2014 Congress passed a one year extension of vital homeowner tax relief that included the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers, after it had expired at the end of 2013.  On July 21, 2015 The Senate Finance Committee approved legislation with a two year tax extension of MI deductibility, and the House Ways & Means Committee is expected to consider similar legislation in September.  USMI believes that the ability of borrowers to deduct MI premiums from federal income taxes should be made permanent.

The IRS data for 2013 is available at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-%28Complete-Report%29

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Blog: CFPB Issues Bulletin Regarding the Cancelability of MI

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In case you missed it, this week the CFPB issued guidance to mortgage loan servicers confirming the requirements on the cancelability of private mortgage insurance (MI) when the borrower pays down the loan to specified levels. This is one of the advantages of private MI over loans insured by government programs like FHA that must be paid for the entire life of the loan, cannot be cancelled, and thus add significant additional costs to the borrower. Loans with private MI offer borrowers an option that is not only highly competitive in terms of pricing, but also cancelable, thus providing substantial savings to borrowers.

For more information on the differences between PMI and FHA MI visit – https://www.usmi.org/wp-content/uploads/2015/11/FINAL-FHA-Factsheet1.pdf

Letter: USMI Joins Broad Coalition Opposing Use of G-Fees To Fund Highway Bill

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(July 23, 2015) This week, USMI joined a broad coalition of nine other housing groups to send a letter to Senate leadership opposing the use of the credit risk guarantee fees (g-fees) charged by the housing finance enterprises, Fannie Mae and Freddie Mac, as a source of funding for the extension of federal transportation programs.  The letter states: “whenever Congress has considered using g-fees to cover the cost of programs unrelated to housing, our members have united to emphatically let Congress know that homeownership cannot, and must not, be used as the nation’s piggybank.”

The full text of the letter can be found here.