As the 116^th Congress settles in, there has already been a lot of housing finance activity. Yesterday, the Senate Banking Committee (SBC) held a hearing on the nomination of Mark Calabria to head the Federal Housing Finance Agency (FHFA); while on Wednesday the House Financial Services Committee (HFSC) held a hearing on housing challenges, most notably homelessness. Recently, the chairs of both of these committees each outlined their priorities for housing finance reform.  The FHFA also decided to no longer defend the constitutionality of its structure in court, amid an ongoing lawsuit filed by Fannie Mae and Freddie Mac (the “GSEs”) shareholders. Finally, as this is our first Roundup in 2019, we highlight that at the end of 2018, USMI President Lindsey Johnson testified along with other trade association and nonprofit executives before the HFSC on bipartisan housing finance proposals.

• Senate Banking holds confirmation hearing on FHFA Director nominee, Mark Calabria. On February 14, the SBC held a hearing on Mark Calabria’s nomination to serve as FHFA Director. At the hearing, Dr. Calabria expressed his intent to make the FHFA a “world class regulator” and promote a “well capitalized, strong system that preserves the 30-year mortgage and does provide access to affordable housing.” While he acknowledged that the FHFA can take certain actions to strengthen the GSEs, Dr. Calabria stressed that fundamental changes to the housing finance system must be done by Congress. During exchanges with members of the Committee, Dr. Calabria stated his support for moving away from a system that privatizes gains while socializing losses and explained that the ultimate goal should be a framework with sufficient capital and regulation that allows the GSEs to facilitate affordable housing for creditworthy borrowers. USMI released a statement on Dr. Calabria’s nomination, which can be found here.
• Senate Banking Chairman Crapo releases GSE reform outline. SBC Chairman Mike Crapo’s (R-ID) housing reform outline serves as a blueprint for comprehensive bipartisan reform efforts. It builds off of other proposals that put into place “multiple private guarantors” to guarantee the timely repayment of principal and interest to investors of eligible mortgages that are securitized through a platform operated by Ginnie Mae. The outline also requires, among other things, that the FHFA establish a capital requirement for all approved guarantors and require that all private guarantors engage in credit risk transfer. In a statement, USMI noted that “the reform plan covers many areas and [USMI] is particularly pleased that Chairman Crapo recognizes the importance and value of private mortgage insurance in enabling access to low down payment conventional mortgages while protecting taxpayers at least to the levels that they are protected today.”
• House Financial Services holds hearing on housing challenges. On February 13, the HFSC held a hearing that examined housing challenges in rural communities, including homelessness, rental housing, and homeownership, as well as legislative proposals to address aspects of these issues. As Chairwoman Maxine Waters (D-CA) noted, the hearing marked the “very first time that the full committee has convened a hearing focused entirely on homelessness” and discussed a bill that she introduced last congress that would allocate more than $13 billion over five years to programs to prevent homelessness. Chairwoman Waters is expected to reintroduce the bill this Congress. This will be a priority for the HFSC in the 116^th Congress and Chairwoman Waters emphasized the need for “proactive solutions to ensure that every American has a safe, affordable place to call home.”

• House Financial Services Chairwoman Waters releases housing finance reform priorities. Chairwoman Waters similarly outlined her agenda for housing reform, which seeks to address the longtime conservatorship of the GSEs. Notably, she highlighted the importance of private mortgage insurance (MI) in any future reformed system, stating that one of her main priorities is to ensure “sufficient private capital is in place to protect taxpayers.” The list of principles also includes requiring transparency to ensure a level playing field for all financial institutions and maintaining access for all qualified borrowers that can sustain homeownership. HFSC Ranking Member Patrick McHenry (R-NC) sent a letter to Waters requesting she convene hearings in critical areas including on “government-sponsored enterprises and the role of the federal government in mortgage finance to explore paths to ending the government conservatorship of Fannie Maeand Freddie Mac” and the “continued oversight of the Financial Accounting Standards Board (FASB) and its Current Expected Credit Loss (CECL) Accounting Standard.”
• Government changes course on question of FHFA constitutionality. Recently, the FHFA filed a supplemental brief with the S. Court of Appeals for the Fifth Circuit stating that it will no longer defend the constitutionality of the FHFA’s single-director leadership structure in court. This ruling comes as the result of a lawsuit brought by Fannie Mae and Freddie Mac shareholders who have challenged the structure of the FHFA and the so-called “Third Amendment Sweep” by the Treasury Department. In July 2018, the federal appeals court reversed a previous court’s decision and agreed with shareholders that the FHFA’s structure was unconstitutional.
• USMI’s President testifies before Congress. At the end of December, Lindsey Johnson testified before the HFSC in a hearing entitled “A Legislative Proposal to Provide for a Sustainable Housing Finance System: The Bipartisan Housing Finance Reform Act of 2018;” a bill introduced by former HFSC Chairman Jeb Hensarling (R-TX), and Reps. John Delaney (D-MD) and Jim Himes (D-CT).  USMI’s testimony addressed several important housing finance topics and discussed the role private MI can play in a reformed housing finance system, specifically in enabling homeownership while protecting taxpayers and the government from mortgage credit risk. She also highlighted key improvements to the industry that make it more resilient going forward.  Specific to the draft legislation, Johnson provided several observations including that private MI is compatible with most proposals for reform because it is done at the loan level, and therefore the credit protection travels with the loan from the first day it is originated whether the loan is placed onto a lenders’ balance sheet, sold to an investor, or sold into a securitization pool. USMI’s testimony also provided several recommendations for the draft legislation, chief among them that any proposal should rely on loan level credit enhancement done by entities that can manage mortgage credit risk through all market cycles. During the hearing, Rep. Andy Barr (R-KY) touted the value of MI stating: “I certainly agree that we need more PMI and we need more credit risk transfers, and the more private capital that we can get in here, the better. Even if we do need a federal guaranty, let’s make sure that private capital has a robust first lost position.” The full list of witnesses and their testimonies can be found here.

It’s been an action-packed summer for housing finance. The Washington Post reported on down payments being the chief hurdle for homebuyers across the country, citing USMI’s recent report on private mortgage insurance’s role in homeownership. There have also been substantive conversations about Fannie Mae and Freddie Mac’s (the GSEs) footprint and future. American Enterprise Institute (AEI) held a conference on the GSEs’ market activities, while Politico published an in-depth article on their market expansion. U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell also testified before Congress and both fielded questions on GSE-related matters. These GSE-related developments come as Fannie Mae CEO Timothy Mayopoulos announced his retirement by year’s end and, as National Mortgage News reported, when stakeholders and influencers are keenly focused on the Administration’s pick for the next Federal Housing Finance Agency (FHFA) Director. In other news, the U.S. Senate held a nomination hearing for Michael Bright to become President of Ginnie Mae, and Federal Housing Administration (FHA) Commissioner Brian Montgomery discussed his priorities.

• The Washington Post reports on the benefits of private mortgage insurance. Last week, The Washington Post featured an article focused on the difficulty for many Americans to save a 20 percent down payment to buy a home, and how private mortgage insurance (PMI) can help. In the piece, the author writes about the long wait time it can take Virginia, Maryland, and DC borrowers to save 20 percent down for a home, and cites USMI’s recently released state report. The article also highlights that in 2017, 56% of purchase loans with PMI went to first-time homebuyers. 
• AEI hosts discussion on GSE mission creep. AEI hosted an event that discussed the GSEs’ footprint in the housing finance system and their history of mission creep into the primary market. Panelists at the event, which included an array of respected housing finance experts, cited examples of direct-to-consumer product marketing, lines of credit to non-bank servicers, dramatic expansions in the multifamily market, and opaque pilots that directly compete with traditional forms of loan-level credit enhancement. Panelists unanimously agreed that housing finance reform is necessary and it’s inappropriate for the GSEs to expand their footprint and market power while in conservatorship. Key observations include:
  • Michael Fratantoni (Mortgage Bankers Association): “There is constant concern that [the GSEs] are stretching beyond their defined role in the marketplace… In this conventional conforming there should be a bright line between what primary market entities do and what secondary market entities – like Fannie and Freddie – do.”
  • Michael Stegman (Milken Institute): “The lack of transparency in pricing, capital, and cross-subsidy have certainly complicated the conversation around housing finance reform and I would agree that we need a whole lot more transparency.”
  • Ed DeMarco (Housing Policy Council) referenced a February 2010 letter to Congress in which he stated: “After considering the statutory requirement and goals of conservatorship, I have concluded that permitting the Enterprises to engage in new products is inconsistent with the goals of conservatorship… In short, the Enterprises will be limited to continuing their existing core business activities and taking actions necessary to advance the goals of conservatorship.”
• Politico reports on the GSEs’ market expansion. Earlier this week Politico featured an article that includes in-depth analysis of the Enterprises “quietly expanding their activities to fortify themselves against any efforts to rein them in,” and features observations from key housing experts. The article notes that recent activities and pilots have drawn scrutiny from members of Congress, with Rep. French Hill (R-AR) expressing concern about the GSEs’ mission creep to Treasury Secretary Steven Mnuchin, stating “The GSEs’ attempt to obtain expanded powers [is intended] to put them in an even more powerful position as reform proposals are considered by Congress.”
• S. Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell call for GSE reform. Treasury Secretary Steven Mnuchin testified before the House Financial Services Committee. During the hearing, Mnuchin stated the country needs GSE reform, saying it is “something that I am determined, in the next Congress, should be a major focus of ours — hopefully on a bipartisan basis. But we can’t just leave these things sitting the way they are as they have been.” Mnuchin also responded to a question from Congressman French Hill (R-AR) about the GSEs focusing on their core mission of serving secondary mortgage market homeowners and not competing with the private sector, saying: “…I think they should stay to their core business.” Fed Chair Jerome Powell testified separately before the House Financial Services Committee and Senate Banking Committee. He stated that housing finance reform remains the most significant unfinished business from the financial crisis. Specifically, Powell said, “It is really important for the longer run that we get the housing finance system off the federal government’s balance sheet and, using market forces and some of the things that are already in place, carry forward with some kind of reform.” Powell added it “continues to be a good time to move forward on [housing finance reform] … It is unsustainable to effectively have the U.S. housing finance system on the government’s books for the long run and it is not healthy.” Powell has previously called for moving to a housing finance system that relies even more on private capital to stand between housing credit risk and taxpayers. These comments by Sec. Mnuchin and Chairman Powell come just as longtime Fannie Mae executive Timothy Mayopoulos — who has served as the GSE’s CEO since April 2012 — announced his retirement effective end of 2018.
• Senate holds nomination hearing on Michael Bright to be Ginnie Mae President. The Senate Committee on Banking, Housing, and Urban Affairs held a nomination hearing on Michael Bright, who was nominated by President Donald Trump in May 2018 to become the next President of Ginnie Mae. During the hearing, Bright was asked about a 2016 paper he co-wrote on housing finance reform, which proposed placing the GSEs in receivership and establishing Ginnie Mae as a standalone entity separate from the Department of Housing and Urban Development (HUD). Bright said in the hearing, however, that he does not intend to advance those proposals as President of Ginnie Mae. It was also noted in the hearing that Bright helped write 2013 legislation to reform the GSEs as a former aide to Sen. Bob Corker (R-TN). During discussion about his past work, Bright said “aspects of conservatorship have been more durable” than originally thought at the time the 2013 bill was drafted.
• FHA Commissioner Brian Montgomery prioritizes technology upgrades as part of FHA reform. FHA Commissioner Brian Montgomery said that he wants to make sure FHA is around for “generations to come” and described the agency as being in “fix-it mode.” Commissioner Montgomery is specifically focused on prioritizing technology upgrades to replace mainframes currently in use at HUD and the FHA. According to April 2018 testimony from Dana Wade, General Deputy Assistant Secretary of FHA, “there were 73 outages of FHA’s origination systems during 2017, with durations lasting as long as five days.” There is universal agreement among housing finance stakeholders that the FHA’s 40+-year-old mainframe system is in dire need of updating and that the agency’s continued use and reliance on an obsolete programing language creates significant taxpayer risk.
• National Mortgage News lists potential new FHFA Directors. Yesterday the mortgage news outlet released an article that puts forth seven possible contenders to run the FHFA after current Director Mel Watt’s term expires in January 2019. The list of potential successors includes federal policymakers and respected housing finance experts including Adolfo Marzol, Rep. Jeb Hensarling, Mark Calabria, Michael Bright, Craig Phillips, Ed DeMarco, and Phillip Swagel. As the article notes, the Administration’s selection of the next FHFA Director will have significant implications for the GSEs, including what reforms might be pursued and achieved during the Trump Administration, as well as the broader housing finance market. The term of current FHFA Director Mel Watt ends January 6, 2019.

It’s a good day to be a Washington Capitals fan! #ALLCAPS #ROCKTHERED! As summer heats up, so do several issues and developments in the housing industry. This week USMI released a new report on how private mortgage insurance (MI) has helped nearly 30 million homeowners nationwide for more than 60 years.  In addition, the Federal Housing Finance Agency (FHFA) received a number of comment letters on its Notice of Regulatory Review process, including from USMI and the Mortgage Bankers Association (MBA), among others. Housing has also been a big topic in Congress lately as the U.S. Senate voted to confirm Brian Montgomery as the new Federal Housing Administration (FHA) Commissioner, and the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Fannie Mae and Freddie Mac’s (the GSEs) 10 years of conservatorship. And last but certainly not least, June is National Homeownership Month and we recognize the National Fair Housing Alliance, which will host its annual conference next week that celebrates the 50^th Anniversary of the Fair Housing Act.

• USMI releases new report on private MI’s role in homeownership nationwide. USMI released a national report on the role of private MI in all 50 states and the District of Columbia. The report found that nearly 30 million homeowners have been served by MI for more than 60 years, and breaks down low down payment mortgage lending with MI in all 50 states. The report also underscores the historic importance of MI, how MI has helped promote homebuying in the U.S. especially with first-time buyers, and the protections that MI provides to American taxpayers and the federal government. The complete report on MI in the U.S. is available here. All 50 states fact sheets, plus data for the District of Columbia, are available here.
• Trades, including USMI and MBA, submit comment letters on FHFA Notice of Regulatory Review. This week, USMI submitted a comment letter to the FHFA on its Notice of Regulatory Review as part of the agency’s five-year Regulatory Review Plan, which identifies agency rules that should be changed or modified. In its letter, USMI suggests that FHFA should reassess its “Prior Approval for Enterprise Products” interim final rule for the GSEs, because though the regulation establishes a process for the GSEs to obtain prior approval from the FHFA for new products—and provide prior notice to the FHFA for new activities—the regulation is “unused [since its implementation in 2009] and apparently not fit for purpose.” USMI argues that “new activities and products have the potential to significantly impact many stakeholders in the housing finance ecosystem—GSEs, lenders, private mortgage insurers, borrowers, and the American taxpayer” and therefore “stakeholders should not have to rely on mechanisms that sidestep the Administrative Procedure Act such as ‘requests for input’ to offer feedback on new activities and programs proposed by the GSEs.” Further, USMI notes that since becoming conservator of the GSEs in 2008, FHFA has not addressed the interaction between its regulatory and conservatorship authorities. For these reasons, USMI urges FHFA to “withdraw the Regulation and resubmit a new proposed rule for a formal notice and comment period with additional clarity on the FHFA’s role and authority as conservator and regulator of the GSEs, as well as a workable approach for assessing new activities and products.”As reported by Inside Mortgage Finance (subscription), MBA also submitted a comment letter urging FHFA to require public disclosure on “any notice” of new business activities being planned by the GSEs. Among other things, MBA asks that FHFA specify the factors and metrics it will consider when determining whether a new activity constitutes as a new product or new activity, and specifically calls on FHFA to modify the manner in which it addresses new activities characterized as “pilots.”
• Brian Montgomery confirmed as new FHA Commissioner. Brian Montgomery, a respected housing expert and seasoned mortgage finance professional, was confirmed in a widely bipartisan vote to serve as President Trump’s FHA Commissioner. Commissioner Montgomery, who previously served as FHA Commissioner in the George W. Bush administration, will be responsible for overseeing the more than $1 trillion of insurance in force at the FHA as well as addressing some of the challenges facing the FHA going forward.Upon Commissioner Montgomery’s confirmation, USMI President Lindsey Johnson released a statement praising the Senate confirmation of the new FHA Commissioner: “USMI applauds the Senate for its bipartisan vote to confirm Brian Montgomery to serve as FHA Commissioner… We look forward to working closely and collaboratively with Commissioner Montgomery to create a more coordinated, consistent, and transparent housing system – a system that can expand private capital’s role in shouldering more risk in front of taxpayers in the housing market.”
• Senate holds hearing on “Ten Years of Conservatorship” of the GSEs. The Senate Committee on Banking, Housing, and Urban Affairs recently held a hearing entitled “Ten Years of Conservatorship: The Status of the Housing Finance System,” in which FHFA Director Mel Watt testified on the GSEs’ activities over the last ten years under federal control. During his testimony, Director Watt said that FHFA has “worked with the Enterprises to develop a Conservator Capital Framework [CCF] that establishes aligned capital guidelines for both Enterprises across different mortgage loan and asset categories” and that FHFA uses the CCF to assess GSE guaranty fees, activities, and operations. Director Watt suggested that, as regulator, he believes it is important for FHFA to “articulate a view on prudential capital requirements for the Enterprises.” Director Watt suggested that FHFA will release for public comment a proposed rule for post-conservatorship risk-based capital and minimum leverage capital requirements.During the question and answer portion of the hearing, Senator Bob Corker (R-TN) focused on the CCF and asked if Director Watt agreed that “capital for these institutions should be fairly close at least to some of the larger banking institutions.” Senator Corker also spoke to the GSEs’ footprint, suggesting that “there are some areas where it [the footprint] has expanded… We have a situation now where Freddie Mac is now lending, they have become a lender their servicers.” Senator Corker noted “some of the pilot programs over the last five years have actually expanded the role of the two GSEs,” specifically pointing to Fannie Mae’s recent increase in debt-to-income ratios and its “financing Airbnb” as examples of expansions of the GSEs in the marketplace. Senator Corker said, “there has actually been an expansion of mission, and so while we have gotten the portfolios down it appears that instead of trying to decrease the footprint over time, over the last five years we are beginning to, especially in the last couple years, expand the mission.”Senator Pat Toomey (R-PA) asked Director Watt about the recent release of the IMAGIN product into the market place, and specifically “why there was not maybe even a traditional rulemaking process or a period of public comment to consider this.” Senator Toomey also questioned the recent financing of mortgage service companies, noting that “this looks like new kinds of activities, new practices, where we have not seen an explanation, an opportunity to comment and to get public input on.” Director Watt responded that “if I took public comment on every pilot that we did, we would never do any.” Senator Toomey ended his line of questions by asking Director Watt to respond in writing with an explanation for the rationale behind the program.
• National Fair Housing Alliance celebrates 50^th Anniversary of Fair Housing Act. The National Fair Housing Alliance will hold its annual conference next week celebrating the 50^th Anniversary of the Fair Housing Act. The conference, titled “The Fair Housing Act at 50: Making Every Neighborhood a Place of Opportunity” will be held June 9 through 12 and aims to bring together thought leaders and experts on civil and human rights, housing, lending, insurance, education, transportation, health, environmental justice, and community development to examine achievements made under the Fair Housing Act. The conference will also observe the current barriers to fair housing and inclusion, and what is on the horizon in the coming years. More information about the events commemorating the 50^th Anniversary of the Fair Housing Act can be found here.