Category: Blog

Blog: 5 Questions to Ask When Shopping for a Mortgage

Posted on by Rhina Portillo

Buying a home is a major financial commitment. It’s exciting, but can also be confusing and overwhelming. Choosing the best mortgage that fits your needs is an important first step and first-time homebuyers in particular should research the many options and know the right questions to ask. Here are some questions to ask a lender that will help you make an informed mortgage decision:

* How much can I afford? A home affordability calculator can help you get an idea of what you may be able to afford and keep your monthly payments within your budget. In addition to recurring expenses like car payments, student loans, credit cards and disposable income, be sure to consider other monthly expenses related to the new home, like association fees, homeowners’ insurance, utilities and property taxes. Further, some types of mortgages have firm eligibility cutoffs related to the ratio between a buyer’s total debt amounts and their monthly income.

* How much do I need for a down payment? It’s a common misconception that a 20 percent down payment is required to buy a home. Let’s face it, a 20 percent down payment is a lot of money, and often the largest obstacle for homeownership, especially for first-time buyers. You can qualify for a conventional mortgage with as little as 3 percent down. Conventional mortgages originated with a low down payment, which is defined as less than 20 percent, require private mortgage insurance (MI) until approximately 20 percent equity is established through either monthly payments or home price appreciation. When mortgage insurance cancels, your monthly mortgage bill is reduced. It is important to know that not all forms of MI are created equal — private mortgage insurance is temporary and cancelable but the overwhelming majority of mortgages backed by the government’s Federal Housing Administration (FHA) contain insurance that cannot be canceled.

* What is the interest rate and is it fixed? Most first-time homebuyers go with a 30-year fixed-rate mortgage, which locks you into an interest rate with steady, predictable payments. Different lenders may offer different rates, so make sure to contact several lenders to ensure you’re getting the best option available in the market. A rate lock protects you from rising interest rates while the loan is being processed and lasts for a specific amount of time. In addition, make sure you know whether the rate is fixed or “adjustable.” Adjustable rate mortgages, commonly referred to as “ARMs,” result in periodic adjustments in the interest rate based on the lender’s cost of credit, and can be detrimental to homeowners in rising interest rate environments. Finally, ask if you are paying for “points” to reduce the interest rate. It’s an added upfront cost paid at closing, but it results in a lower rate for the life of the loan.

* Does my credit score matter? Yes, generally stronger credit scores (FICO 720 and above) come with better interest rates, but fortunately there are mortgage options for those with imperfect credit scores too. When you apply for a mortgage, your credit record is used to help determine your approval and mortgage terms, but it is not the only thing lenders consider. A lender will also look at your debt-to-income (DTI) ratio, cash reserves and other factors to help gauge your overall creditworthiness.

* Should I get pre-approved for a mortgage? Yes. Pre-approval means you receive a conditional commitment from a lender up to a specific loan amount. In a seller’s market with tight housing supply, being pre-approved demonstrates that you are a serious buyer with access to mortgage financing. To become pre-approved, you’ll provide your lender with information on your income, assets, debts and credit history to analyze your financial profile and determine your creditworthiness and amount you can borrow to purchase a home.

Make sure to know your options and choose the one that works for you. Check out lowdownpaymentfacts.org to learn more.

Statement: On IMAGIN

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on the recent news that Freddie Mac is piloting a new low down payment insurance program aimed at a small segment of the market called Integrated Mortgage Insurance (IMAGIN).

“Mortgage insurers (MI) have been supporting the U.S. housing market since 1957 by enabling homeownership opportunities for more people by providing insurance on mortgage loans where borrowers cannot afford a 20 percent down payment. To date, the MI industry has made homeownership possible for more than 25 million Americans.

“Mortgage insurers have taken steps to enhance both their claims paying ability—by increased capital and operational standards through the Private Mortgage Insurer Eligibility Requirements (PMIERs)—and their claims paying process through updated Master Policy Agreements.  These important steps lay the foundation for efforts to further “de-risk” the government sponsored enterprises (GSEs) through expanded use of private capital with MI, including through deeper cover mortgage insurance.

“Last week, Freddie Mac rolled out a pilot program (IMAGIN) that bypasses the highly regulated and highly capitalized MI industry, and began purchasing credit enhancement from an entity that is not held to the same regulatory standards as the MI industry.  We believe that the IMAGIN pilot violates the spirit of the Congressional charter for Freddie Mac and represents a significant blurring of the bright line separation between primary market and secondary market activities.  Because MI selection is currently handled by the lender as part of the primary market process, the IMAGIN program sets a precedent of allowing the GSEs to participate in primary market activities while also putting the taxpayer at greater risk by circumventing the high capital and regulatory standards that MIs are held to today.

“USMI is also concerned with the lack of transparency about the program and its development as well as the inherent conflict of interest in Freddie Mac’s role of imposing PMIERs standards on private MIs and then designing a program that relies on less regulated (and in turn less expensive) reinsurers to circumvent these standards.  We are also concerned about this program due to its lack of sustainability.  As monoline insurers, the MIs serve as capital that is more permanent and committed to taking only U.S. housing risk, where the IMAGIN panel of reinsurers have no such commitment.  This could leave the mortgage finance industry—and taxpayers—exposed and negatively affect home ownership.

“Rather than moving forward with this new pilot, we believe now is the time for the GSEs to explore options to use more private mortgage insurance.  The MI industry has demonstrated its ability to raise capital in the equity and debt markets, and also tap into other investors in the capital and reinsurance markets, to distribute risk.

“A deep MI pilot built around the core strengths of the MI industry, lender relationships, independent underwriting standards, and expertise in pricing long tailed credit risk, combined with Credit Risk Transfer via the capital and reinsurance markets by MI companies, can better protect the U.S. taxpayer while also providing prudent access to home ownership.”

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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.

Blog: Mortgage Insurance is an Enduring Piece of Housing Finance Reform

Posted on by Lindsey Johnson

By Lindsey Johnson

While discussing 2018 housing finance reform recently, specifically private mortgage insurance’s role in helping homebuyers and protecting lenders and the GSEs in the mortgage finance system, I was reminded of one of the most significant reasons MI is uniquely valuable: it is compatible with nearly every form of mortgage credit execution. While there are pilot projects underway at Fannie Mae and Freddie Mac experimenting with other forms of credit risk transfer (“CRT”), private mortgage insurance is the original form of CRT. MI is credit enhancement for borrowers with a low-down payment, and it has been a sustainable component of America’s housing finance system for more than 60 years.

Proposals and recommendations to reform the GSEs are being floated by government agencies and lawmakers, financial experts, academics, think tanks, and housing organizations. While these proposals seek the same goal of achieving much needed reform, there are many different ideas for what reform should achieve.

For more than six decades, private mortgage insurance has played a critical role in helping first time buyers—especially those without a large down payment—achieve affordable home financing while also protecting lenders (and the government and taxpayers when these mortgages are securitized by Fannie Mae and Freddie Mac). MI should continue to provide this important function in the housing system of tomorrow.

But more than being compatible, the timing of mortgage insurance matters too. When we talk about “loan level” or “front-end” or “at origination” credit enhancement we are specifically referring to how MI is part of a low-down payment mortgage from day one. When a homebuyer sits down at the settlement table to sign paperwork and get their keys, the mortgage is insured. Just like you are required to have auto insurance before you drive your car, the protection on these mortgages is present before the homebuyer moves in. Mortgage insurance is part of a low-down payment conventional mortgage if the loan is held on a bank’s portfolio for a period of time or whether it is pooled with others and securitized by Fannie Mae or Freddie Mac—the protection on the individual loan remains present. And it’s a good thing, too, considering private mortgage insurers paid over $50 billion in claims through the down turn – losses the government and taxpayers didn’t have to bear. This is important because, while it is a positive step for the GSEs to experiment with other forms of CRT in the system, these new alternatives are not the same and shouldn’t be considered interchangeable.

Many of the benefits of MI come from the fact that it attaches to the loan at the time the loan is originated, something that should occur in any future system for the reasons discussed below.

What are the unique benefits of MI?

  • Loan-level insurance is a form of credit enhancement that most aligns with borrowers, servicers, and investors to not only put borrowers into homes, but also to keep them there. MI is unique because it actively manages credit risk, reducing risk on individual low-down payment loans while affording lenders flexibility for secondary market execution, whether through the GSEs, Federal Home Loan Bank System, private securitization, or to hold loans on portfolio. Being part of the loan from the time it is originated allows mortgage insurers to provide a second set of eyes when it comes to underwriting, helping to ensure the buyer can afford the mortgage. MIs have decades of experience and expertise in pricing and managing mortgage credit risk to balance affordability and risk sensitivity—something unique to MI that is not available through most other forms of credit enhancement. Because MIs are in the first-loss position (meaning they are the first to pay losses in a default after the borrower’s down payment)—MIs have the incentive to use strong underwriting, which strengthens the mortgage finance system.  Also, unlike other CRT structures, because MI is done at the individual loan level, MIs have a strong incentive to help borrowers achieve a workout to stay in their home rather than to default.
  • MI is compatible with different housing finance systems. MI protection travels with a home loan wherever it goes, including being added to a lender’s balance sheet, sold to an investor, or placed into a securitization pool. As a result, unlike with other CRT pilot programs, MI does not rely on the GSEs or other government or quasi-government entities to hold and distribute credit risk. Private MI is fully compatible with the broadly shared goal of a housing finance system with multiple funding sources and substantial private capital—a feature that distinguishes MI from other forms of credit enhancement.
  • Private MI can transition smoothly across the housing finance system. While the other CRT pilots were built to operate only within the Fannie Mae and Freddie Mac construct, the MI industry has historically adapted as the mortgage finance system evolved—from the dominance of Savings & Loan associations to the growth of the GSEs and independent mortgage bankers. The MI industry has the continued ability to evolve and serve any new system that is created with virtually no disruption to the origination and servicing of mortgage loans.

Understanding that our options for a reformed housing finance system is not constrained to a single model, and that a permanent source of private capital can be available under these different constructs, allows policymakers and stakeholders to examine the best system for addressing the concerns/flaws that exist today and how to make a more effective and efficient system in the future. Since 1957, the MI industry has helped more than 25 million families become homeowners while protecting the taxpayers and the federal government from mortgage credit risk. MI will continue to promote homeownership and taxpayer protection in a new housing finance system.

Statement: Great News For Homebuyers: U.S. Congress Extends Mortgage Insurance Tax Deduction

Posted on by Rhina Portillo

WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on the federal budget deal passed by Congress and signed into law by President Trump today, which includes an extension of the tax deduction for mortgage insurance (MI) premiums.

“Mortgage insurance has helped millions of middle income Americans become homeowners and for nearly ten years, the tax deductibility of MI premiums has helped to reduce the cost of homeownership. In a bipartisan manner, our elected lawmakers in Congress demonstrated today their commitment toward helping low down payment first time homebuyers by keeping mortgage insurance tax deductible. This is important, because while many on Capitol Hill appreciate how MI protects the government and taxpayers from credit risk in the housing system, MI also directly benefits everyday workers.”

First available to taxpayers in 2007 and extended multiple times since then on a bipartisan basis, this tax deduction has been a successful tool in ensuring low- and moderate-income homebuyers have access to prudent and affordable low down payment mortgage finance. In 2015 alone, 4.1 million families benefitted from the MI premium tax deduction, for an average deduction of $1,528. The deduction is available to homeowners with MI who have an adjusted gross income under $100,000 and phases-out for adjusted gross incomes up to $110,000. USMI data show that more than half of purchase loans with private MI go to first-time homebuyers and more than 40 percent of borrowers with private MI have incomes below $75,000. The deduction expired at the end of 2016.

Over the past 60 years, private MI has helped more than 25 million families qualify for home financing by bridging the gap between a 20 percent down payment and perfect credit. In the past year alone, MI helped more than 850,000 families purchase or refinance homes.

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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.

Blog: Do the math: Homebuying now may save a lot

Posted on by dcadmin

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 60 percent of homebuyers buy with a down payment of 6 percent or less, 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 $235,000 home. A 5 percent down payment is $11,750 versus $47,000 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 $235,000 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, so too can 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 option, it is true that MI is an added cost on top of mortgage principal and interest, but keep in mind that it is temporary and goes away. Again, it typically lasts about five years. Private MI 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. And when MI is cancelled, the monthly bill goes down. Importantly, the insurance premiums on an FHA mortgage — the 100 percent taxpayer-backed government version of mortgage insurance — cannot be cancelled for the vast majority of borrowers with FHA mortgages.

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.

Newsletter: December 2017

Posted on by dcadmin

As 2017 wraps up, there continue to be many developments in the housing finance system. On Capitol Hill, recent hearings before the House Financial Services Committee’s (HFSC) Subcommittee on Housing and Insurance featured top experts tackling the most pressing issues in the housing market. USMI Chairman Patrick Sinks (who is also CEO of Mortgage Guaranty Insurance Corp.) testified to discuss the importance of increasing private capital in the housing finance system as Congress considers reform proposals. Ginnie Mae Acting President Michael Bright also testified and touted the value of private capital in the housing market, as well as the value of front-end risk sharing, such as with private mortgage insurance (MI). Separately, HFSC Chairman Jeb Hensarling expressed support for moving forward with bipartisan housing reform. In another notable development on the Hill, the U.S. Senate Banking Committee gave its bipartisan approval for Brian Montgomery to be President Trump’s Federal Housing Administration (FHA) Commissioner. His nomination now goes to the full Senate for consideration. Another significant FHA development is the announcement that its loan limit would increase by roughly 7 percent. America’s Homeowner Alliance Managing Director Tino Diaz wrote a thoughtful op-ed about the FHA’s role in the housing finance system. Diaz’s op-ed highlights the need for the FHA to keep its important risk safeguards in place despite Congressional legislation that seeks to weaken these protections. 

  • USMI Chairman Patrick Sinks Testifies Before Congress in Housing Finance Reform Hearing—Part IV. This week, USMI Chairman and MGIC CEO Patrick Sinks testified on behalf of USMI in front of the HFSC Subcommittee on Housing and Insurance in a hearing entitled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part IV.” Sinks highlighted the role that private MI has played in the housing finance system, and discussed the MI industry’s performance through the Great Recession, the key improvements made by the industry that make it more resilient going forward, and the industry’s ability to play a larger role in a reformed system. In addition, Sinks proposed specific principles for housing finance reform, lessons that should be applied to all market participants, and recommendations to increase the role of private capital in the housing finance system to further protect taxpayers and ensure borrowers’ continued access to affordable and prudent low-down payment mortgage credit.
     In a statement, USMI President and Executive Director Lindsey Johnson said: “Private MI has been an invaluable piece of the housing finance system for a long time, decades longer than any other low down payment model being tested. Fortunately, our industry is strong and ready to shoulder an even greater responsibility in the system moving forward. We appreciate Congress’ work to address long overdue reforms to the housing finance system and USMI members look forward to continuing and enhancing the credit risk protection MI provides to shield taxpayers from mortgage credit risk and promote homeownership across the country.”
  • House and Senate Seem Poised to Advance Bipartisan Housing Finance Reform. Speaking at a housing finance reform event hosted by the National Association of Realtors (NAR) and S&P, HFSC Chairman Jeb Hensarling (R-TX) expressed support for moving ahead with bipartisan housing finance reform. Alluding to the likely direction that Republicans may pursue for reform, Chairman Hensarling touted the Ginnie Mae model, which builds off proposals promoted by former Ginnie Mae President Ted Tozer, former Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, and current Ginnie Mae Acting President Michael Bright.Hensarling specifically said: “I don’t want a government guarantee, I don’t think we need a government affordable housing program but in surveying the political landscape I know they will exist in any bipartisan effort.”  Demonstrating bipartisan support for elements of housing finance reform, Rep. Dan Kildee (D-MI) said, “This is an area of policy where I think the divisions that manifest on this committee might be able to be overcome and I want to encourage the leadership of this subcommittee to continue on that path; as long as we know the direction we are going I think there is enough common ground for us to try to knit together some policy that we can all work together on… in a bipartisan fashion.”
  • Acting Ginnie Mae President Michael Bright Touts Private MI and Increased Risk Sharing.  Ginnie Mae’s Acting President Michael Bright testified before the HFSC in a hearing entitled “Sustainable Housing Finance: The Role of Ginnie Mae in the Housing Finance System.” During his testimony, Bright discussed potential Ginnie Mae reforms, the entity’s financial portfolio, as well as VA loan refinancing. Importantly, Bright was asked several questions by Rep. Ed Royce (R-CA) on the role of private MI in the housing finance system.Bright acknowledged that credit risk transfers at Fannie Mae and Freddie Mac (the “GSEs”) are bringing more private capital into the housing finance system and agreed with Rep. Royce that Ginnie Mae and the GSEs have the legal authority to do more front-end risk sharing. Bright also said that he believes credit risk transfers are the biggest success story in the secondary mortgage market in the last five years, and that anything that can be done to lock in those gains is smart policy.
  • FHA Commissioner Nominee Brian Montgomery Approved by Senate Banking Committee. The U.S. Senate Banking Committee approved Brian Montgomery to be FHA Commissioner in a bipartisan vote of 18 to 5. Montgomery, a longtime housing finance expert who previously served as FHA Commissioner under President George W. Bush, will now be considered by the full Senate for a confirmation vote. Today, 46 housing organizations sent a letter to House and Senate leaders urging that the Senate bring Montgomery’s nomination to the Senate Floor for a vote as soon as possible.USMI has specifically applauded Montgomery’s views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government, as well as his previous statement that the FHA “should never take the place of the private sector first-loss solution provided by private mortgage insurers.”
  • America’s Homeowner Alliance Publishes Op-Ed on Need to Retain FHA Risk Safeguards. AHA Managing Director Tino Diaz recently published an op-ed calling for the preservation of FHA risk safeguards in the housing finance system. In his op-ed, Diaz highlights the critical role the FHA has played serving underserved borrowers in the housing finance system, but calls attention to recent misguided efforts to change the FHA’s successful risk protections. Diaz specifically discusses Congressional legislation introduced that seeks to eliminate the FHA’s life of loan mortgage insurance premium (MIP) policy, which is critical to protecting U.S. taxpayers and the federal government from risky FHA loans, all of which are 100 percent government-backed.The op-ed comes the same week the FHA announced that its loan limits will increase in nearly all zip codes across the country—increasing roughly seven percent to $679,650 in many high-cost areas. Diaz’s op-ed takes on even greater importance in light of the FHA’s recent annual report to Congress, which showed the fiscal health of the FHA’s Mutual Mortgage Insurance Fund in a weaker financial position than it was last year and woefully undercapitalized compared to its private sector counterparts. As such, any changes to the FHA’s life of loan policy or reductions to its MIP collection would expose taxpayers and the government to increased mortgage credit risk.

Testimony: Chairman Patrick Sinks Before Congress on Mortgage Insurance and Sustainable Housing

Posted on by dcadmin

Sinks Highlights Importance of Private Mortgage Insurance In Helping Borrowers Qualify for Low Down Payment Mortgages While Protecting Government Against Risk

WASHINGTON — U.S. Mortgage Insurers (USMI) Chairman and Mortgage Guaranty Insurance Corporation (MGIC) CEO Patrick Sinks today testified on behalf of USMI in front of the House Financial Services Committee’s Subcommittee on Housing and Insurance in a hearing entitled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part IV.”

In his testimony, Sinks highlighted the long and successful role that private mortgage insurance (MI) has played in the housing finance system to help homebuyers responsibly purchase homes with affordable low down payments – all while protecting U.S. taxpayers and the federal government from undue mortgage credit risk. Sinks also discussed the MI industry’s performance through the Great Recession and the key improvements made by the industry that make it more resilient going forward.

“Over the last 60 years, private MI has helped more than 25 million families attain homeownership in a prudent and affordable manner. MI reduces taxpayer risk exposure by transferring a substantial portion of mortgage credit risk to companies backed by private capital. Mortgage insurers covered more than $50 billion in claims since Fannie Mae and Freddie Mac entered conservatorship resulting in substantial savings to taxpayers,” said Sinks.

In addition to the important role the MI industry plays in the housing finance system, Sinks proposed specific principles for housing finance reform and lessons that should be applied to all market participants, as well as recommendations to increase the role of private capital in the housing finance system to further protect taxpayers and the government.

Acknowledging that there should be a diverse set of participants in the future to assume and protect against all mortgage credit risk ahead of an explicit government guaranty, Sinks noted that, “We believe much more can be done to reduce the risk to the federal government and make taxpayer risk exposure even more remote without jeopardizing the ability for creditworthy borrowers to continue to buy a home with mortgage financing. This includes a greater reliance on the mortgage insurance model where private capital stands in front of the government and taxpayers.”

In an August 2017 report, the Urban Institute found that GSE loans with MI consistently have lower loss severities than those without MI. In fact, the report shows that for nearly 20 years, loans with MI have exhibited lower loss severity each origination year. The Urban analysis states that “for 30-year fixed rate, full documentation, fully amortizing mortgages, the loss severity of loans with PMI is 40 percent lower than [loans] without.”

USMI President and Executive Director Lindsey Johnson echoed Sinks’ Congressional testimony today: “Private MI has been an invaluable piece of the housing finance system for a long time, decades longer than any other low down payment model being tested. Fortunately, our industry is strong and ready to shoulder an even greater responsibility in the system moving forward. Underscoring the strength of MI, the industry paid more than $50 billion in claims since the financial crisis and has implemented new higher robust capital standards. We appreciate Congress’ work to address long overdue reforms to the housing finance system and USMI members look forward to continuing and enhancing the credit risk protection MI provides to shield taxpayers from mortgage credit risk and to promote homeownership across the country.”

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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: November 2017

Posted on by dcadmin

As the Thanksgiving holiday nears, there has been a cornucopia of news in housing finance. Here is a roundup of recent news to ensure you stay up-to-date on the latest happenings. In a yearly ritual like the Macy’s Day Parade, the Federal Housing Administration (FHA) released its annual report to Congress highlighting the health of its Mutual Mortgage Insurance Fund (MMIF). In the days leading up to the release of the report, the Heritage Foundation wrote a blog post in opposition to terminating the FHA’s life of loan policy in collecting mortgage insurance premiums (MIP), which a number of groups have sought in recent months. Tax reform has gobbled up much of the news over the past few weeks, and this week the House of Representatives passed its tax reform bill. Finally, just like the abundant feasts of Thanksgiving, the House Financial Services Committee’s (HFSC) Housing and Insurance Subcommittee held Part III of its “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform” hearing series).

  • FHA Releases 2017 Annual Report to Congress. The FHA released its annual report to Congress on the health of its MMIF for 2017 – an important measurement of the FHA’s fiscal strength in the housing finance market. According to the report, the MMIF stands at 2.09 percent, down from 2.35 percent last year and just slightly above the statutory requirement of 2 percent. The report also found that the FHA insures more than $1.2 trillion in mortgage credit risk – an increase from its 2016 annual report. DSNews reported that U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson is ensuring the public that HUD is working to better the fiscal health of the FHA. Secretary Carson said, “The fiscal health of FHA demands our constant attention and vigilance to ensure we can continue providing sustainable homeownership opportunities to working families without exposing taxpayers to excessive risk. Our duty is clear—we must make certain FHA remains financially viable so future generations can build wealth and climb the economic ladder of success.” In a statement on the FHA’s annual report to Congress, USMI President and Executive Director Lindsey Johnson said: “The FHA has taken important steps in recent years to improve its financial stability after requiring a $1.7 billion government bailout in 2013 when the agency did not have the necessary capital to cover losses, though more needs to be done. With more than $1.2 trillion in mortgage credit risk, the FHA must enhance its financial strength to continue to serve the borrowers who need it the most… Now is the time for the FHA to refocus on its core mission, scaling back from the oversized role it played during the recession so that it can return to serving low-to-moderate income individuals who need the FHA’s 100-percent government backed loans the most.”
  • House of Representatives Passes Tax Reform Legislation. Yesterday, the House of Representatives voted 227 to 205 to pass R. 1, the “Tax Cuts and Jobs Act.” Among many other provisions included in the tax plan, the bill reduces the mortgage interest deduction from $1 million to $500,000 and caps the deduction for property taxes at $10,000. The U.S. Senate will soon vote on its own tax proposal and, if it passes, will go to conference with the House to negotiate a final bill through reconciliation. To read more about USMI’s views on the House’s tax reform bill, please click here.
  • Housing and Insurance Subcommittee Holds Housing Finance Reform Hearing—Part III. A HFSC subcommittee received testimony from representatives of the Milken Institute, American Enterprise Institute (AEI), Moody’s Analytics, Cardiff Consulting Services, and the Urban Institute for housing finance reform. Importantly, former Ginnie Mae President and current Milken Institute Senior Fellow Ted Tozer called for a balanced deployment of government and private capital in support of a fairer and more efficient housing finance system, and also called for the overall reduction of the government footprint as more private capital re-enters the system at different points in the primary and secondary mortgage markets. Tozer’s remarks echo what other housing experts have said about private capital in the housing finance system, which reduces mortgage credit risk to U.S. taxpayers and the federal government.
  • Heritage Foundation Opposes Terminating FHA Life of Loan Premium Coverage. In a recent article, Heritage Foundation scholars John Ligon and Norbert Michel spoke out against terminating FHA MIP, saying that “these changes would be unfair to federal taxpayers that subsidize the cost of the Federal Housing Administration’s insurance program.” The authors specifically mention a recent bill introduced in the House of Representatives that would eliminate the FHA’s current life of loan policy. The authors also urged neither Congress nor the FHA to make any policy changes that would weaken the agency’s ability to cover insurance losses. USMI also opposes reducing FHA’s premium or cancelling FHA’s premiums collected for the life of the loan, because the 100-percent government-backed FHA will continue to hold the same amount of mortgage credit risk while collecting less in insurance premiums, thereby putting taxpayers and the federal government at increased risk. In fact, according to the findings in the FHA’s 2017 annual report to Congress, if the FHA had reduced insurance premiums as planned in January, the MMIF would be at 1.76 percent and undercapitalized. 

Statement: FHA’s Annual Report to Congress

Posted on by Rhina Portillo

Report Shows Agency’s Financial Reserves Weakening

WASHINGTON — Today, the Federal Housing Administration (FHA) released its “Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund (MMIF) Fiscal Year 2017.” The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“The Federal Housing Administration today released its 2017 annual report to Congress on the financial status of its MMIF. According to the report, the MMIF stands at 2.09 percent, down from 2.35 percent last year and now just slightly above the statutory requirement of 2 percent. The FHA has taken important steps in recent years to improve its financial stability after requiring a $1.7 billion government bailout in 2013 when the agency did not have the necessary capital to cover losses, though more needs to be done. With more than $1.2 trillion in mortgage credit risk, the FHA must enhance its financial strength to continue to serve the borrowers who need it the most.

“The FHA is a critical part of the housing finance system. While there have been calls to reduce FHA insurance premiums, today’s report makes clear that had this happened, the fund would be at 1.76 percent and undercapitalized. The FHA should resist calls for significant policy changes, such as reducing the cost of its insurance or cancelling the collection of insurance premiums while the FHA insurance protection remains in-force on a mortgage. This will help the agency rebuild its financial strength.

“Now is the time for the FHA to refocus on its core mission, scaling back from the oversized role it played during the recession so that it can return to serving low-to-moderate income individuals who need the FHA’s 100-percent government backed loans the most. Today borrowers have low down payment options through the conventional market backed by private mortgage insurance. Private mortgage insurers put their own capital at risk, paying more than $50 billion in claims since the financial crisis, and have all implemented new higher robust capital standards. USMI looks forward to working with Congress and the Administration to establish a coordinated and consistent housing policy so that private capital can shoulder more of the credit risk in the housing markets, while FHA and the private sector act in the marketplace together to ensure borrowers have access to safe, sustainable and affordable mortgage options. Private MI has served as a reliable and affordable credit enhancement tool for more than 25 million American families for 60 years.”

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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.

Statement: House Tax Reform Legislation

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on H.R. 1, the “Tax Cuts and Jobs Act,” the comprehensive tax bill released by the U.S. House Ways and Means Committee yesterday:

“USMI is encouraged by efforts in Congress to simplify the current tax code for everyday Americans and to promote economic growth. Comprehensive tax reform holds the promise of allowing Americans to keep more of their hard-earned money, modernize the tax code to help working families and spur economic growth.

“The House Republican proposal represents an important start towards putting the American tax system on a more simple and sustainable path, but USMI is concerned that the current draft excludes the premiums paid by borrowers for mortgage insurance as part of the definition of ‘mortgage interest.’ Since 2007, the deductibility of mortgage insurance premiums has provided helpful tax relief for millions of middle class homeowners with low and moderate incomes. IRS data from 2015 show the mortgage insurance deduction was claimed on 4.1 million tax returns that year—the vast majority of those returns had incomes ranging between $30,000 and $100,000. This is clear evidence that this specific tax deduction should be preserved because it helps make homeownership more affordable for Americans who value and need this help the most. So long as mortgage interest remains tax deductible, as is the case in the House legislation, so too should mortgage insurance.

“We understand comprehensive tax reform is as challenging of an undertaking as it is important—and we know there are difficult choices that have to be made throughout the process. USMI supports many of the stated objectives of tax reform, but is concerned that current and prospective low- and moderate-income homebuyers will lose an important deduction that they have come to build into the cost of their mortgage. Therefore, USMI will continue to work with House and Senate leadership to ensure the final tax reform package includes this important provision aimed at helping bring down borrowing costs for responsible taxpayers who need it most.”

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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.

Statement: Nomination Hearing of Brian Montgomery for FHA Commissioner

Posted on by Rhina Portillo

WASHINGTON — Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate Committee on Banking, Housing, & Urban Affairs’ hearing on the nomination of Brian Montgomery for Federal Housing Administration (FHA) Commissioner:

“Brian Montgomery is a respected expert and seasoned mortgage finance professional who our industry supports to serve once again as FHA Commissioner. While serving in the President George W. Bush administration, Mr. Montgomery led the FHA when the agency expanded as part of its countercyclical role during the financial crisis – a time of unprecedented market stress. As such, Brian Montgomery has the historic experience and expertise to oversee and manage the FHA’s return to its smaller, appropriate, and intended role in the market focusing on those borrowers who need the FHA’s 100% taxpayer-backed loans the most. The conventional mortgage market today is healthy and continues to prudently serve creditworthy homebuyers, including those with low down payments.

“The FHA serves an incredibly important role for many low-to-moderate income borrowers. We are confident that as FHA Commissioner, Brian Montgomery will continue to be a champion for a robust housing finance system that strikes the appropriate balance between the conventional market backed by private capital and government-backed FHA loans. We agree with Mr. Montgomery’s previously expressed views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government, and it is encouraging to know that he believes the FHA ‘should never take the place of the private sector first-loss solution provided by private mortgage insurers.’

“While the FHA serves a very important function in the housing finance system, its footprint has expanded dramatically since the financial crisis. Now is the time to focus on ensuring that the FHA is not overexposing taxpayers to undue risk and refocus the agency on its core mission of serving borrowers who need 100% government-backed home loans. We look forward to working closely with Brian Montgomery in seeking ways to establish a more collaborative, coordinated, and consistent housing policy and to help expand private capital’s role in shouldering more risk in front of taxpayers in the housing market. For 60 years private mortgage insurance has played a leading role in promoting affordable and sustainable homeownership and we look forward to building upon our success 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.

Statement: Confirmation of Deputy HUD Secretary Pam Patenaude

Posted on by Rhina Portillo

WASHINGTON — Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the confirmation of Pam Patenaude to be Deputy Secretary of the Department of Housing and Urban Development (HUD):

“USMI applauds the Senate for its confirmation of Pam Patenaude to be Deputy Secretary of HUD. As a longtime public servant and expert in the housing finance system, Deputy Secretary Patenaude fully understands the need for a coordinated, consistent, and transparent approach to federal housing policy across government channels.

“Deputy Secretary Patenaude’s extensive background in housing finance will allow her to immediately begin work on the most important issues facing the housing finance system. Importantly, Deputy Secretary Patenaude’s leadership in these efforts will ensure that Americans have greater access to mortgage finance credit, promote a greater role for increased private capital in mortgage finance, and reduce taxpayer risk exposure. USMI and the private mortgage insurance industry look forward to working with Deputy Secretary Patenaude going forward to establish a more equitable and robust housing finance system.”

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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.