Category: News

Blog: MI Industry’s Observations & Recommendations for Replacing CFPB’s QM Patch

Posted on by dcadmin

The Consumer Financial Protection Bureau (CFPB) just released an Advanced Notice of Proposed Rulemaking on the “Qualified Mortgage Definition under the Truth in Lending Act.” The CFPB is considering whether to revise the Qualified Mortgage (QM) definition in light of the pending expiration of the provision commonly referred to as the GSE Patch (or Temporary GSE QM loan category) in January 2021. The same statutory product restrictions exist for loans under the Patch as for other QM loans, however these loans are not subject to the 43 percent debt-to-income (DTI) limit—a significant exception that has supported a substantial portion of the overall housing market. Considering a robust market has developed under the GSE Patch, any changes could substantially impact consumers’ access to mortgage finance as well as determine the level of risk within the mortgage finance system, which has implications for homeowners, financial institutions, and taxpayers.

As takers of first-loss mortgage credit risk with more than six decades of expertise and experience underwriting and actively managing that risk, USMI members understand the need to balance prudent underwriting with the need to ensure there is a clear and transparent standard that maintains access to affordable and sustainable mortgage finance credit for home-ready borrowers. As different stakeholders contemplate what to do next with the Patch, USMI offers a few observations and recommendations for replacing the QM Patch.

Observations 

DTI is not the best or most predictive factor in assessing consumers’ ability-to-repay. Pre-financial crisis, one of the most egregious lending practices was making loans to individuals without a reasonable consideration of their financial ability-to-repay (ATR) the loan. As policymakers and regulators aimed to ensure consumers had at least some reasonable ATR their mortgages going forward, the 43 percent DTI cap was established as part of the CFPB’s QM rule. While DTI is not necessarily the most predictive measure, historical data (especially for 2004-2007 cohorts of loans) demonstrates that higher DTIs are correlated to higher defaults (and predictive of a consumer’s ATR).[i] Yet, DTI is only one measure.

USMI and others have identified more predictive borrower characteristics, most notably that reserves in a bank account are more indicative of an individual’s ATR than many other factors. According to a recent report by JPMorgan Chase Institute,[ii] when a borrower has three months of reserves (funds to cover mortgage payments) in the bank, these borrowers were five times less likely to default on their mortgage as those who had insufficient cash in the bank to cover one mortgage payment. According to the JPMorgan Chase Institute report, homeowners who had less than one month’s mortgage payment in savings made up 20 percent of the people in their survey but made up 54 percent of the people in the survey who defaulted on their loans.

While DTI is one factor for assessing ATR, by simply limiting the market to a hard 43 percent limit, many home-ready borrowers will be cut out of the market. In fact, roughly 30 percent of the GSEs’ market today is above the 43 percent DTI limit. CoreLogic estimates that the total loan origination volume for 2018 for loans that were above the 43 percent limit was roughly $260 billion out of a $1.6 trillion market in 2018[iii] (though this number could be higher because some banks have chosen to hold loans in their portfolio that are above the 43 percent DTI limit).

The need for transparency and input on compensating factors. Since the implementation of the QM Rule and the GSE Patch, the market has seen that many good quality loans have been above the 43 percent DTI limit. For loans with higher DTI under the Patch, the market has adapted and relied on compensating factors to adjust for and mitigate the additional risk. These compensating factors are done as part of the GSEs’ automated underwriting systems (AUSs). The current AUSs and the compensating factors used within them are not transparent to stakeholders or the public. However, as mortgage insurers and others analyze GSE loans with higher DTIs, we can begin to back-in to what the compensating factors are and when they come into play for higher DTI GSE loans.

Recommendations

ATR and product restrictions should remain as part of any updates to the QM rule. USMI believes the requirements for assessing a borrower’s ATR that require the lender to underwrite the consumer using credit, income and asset documentation should remain as critical components to any enhancements to the rule. It is also essential that the QM statutory product restrictions remain intact to maintain discipline in the lending community as well as to protect consumers.

A single, transparent underwriting standard for defining QM criteria should be established. USMI recommends a list of transparent mitigating underwriting criteria (compensating factors) for loans with DTIs between 45 and 50 percent for defining QM (in addition to the existing statutorily defined product features and ATR underwriting criteria) be established. While USMI has developed a list of proposed criteria (see below), the list of criteria could ultimately be set by a non-profit membership organization or standard-setting body.

A transparent and easy-to-understand and use set of underwriting criteria can be programmed to allow for manual underwriting or automatic underwriting engines. Further, any private market participant could publish or code these criteria in their investor requirements. For the GSEs, it would remain in the purview of the Federal Housing Finance Agency (FHFA) Director to determine whether the GSEs could guarantee high DTI loans. If not, the loans would simply receive an “Approve/Ineligible” or “Accept/Ineligible” AUS decision. This approach would level the playing field between market participants, allow for continued innovation around documentation, verification, and other underwriting standards, and force the GSEs’ AUSs to become more transparent.

Proposed Set of Compensating Factors

Importantly, USMI believes that there should be one industry standard with complete transparency into the credit decisioning factors used for underwriting mortgage credit risk and that input from industry should be allowed on updates to the underwriting criteria. Further, any changes related to maximum DTIs should be consistent across different lending channels (e.g., FHA and GSEs) to ensure there is not market arbitrage to achieve QM status.

Appendix Q needs to be addressed. All proposals to assess and define an ATR will have challenges or shortcomings. For any proposal that includes DTI, there is still the challenge of addressing the acknowledged limitations of Appendix Q, including to allow lenders to document and verify borrower income and assets utilizing new innovations in the industry. A possible permanent fix to address Appendix Q could be to allow for the GSEs’ guides to be maintained by a regulatory body outside of the GSEs and updated as necessary. Legislation is needed if Appendix Q is to allow for the use of guides or handbooks of the GSEs or other agencies.

APOR could remain the determinant for the Safe Harbor protection but should not be the replacement for DTI requirement and Underwriting Criteria. Further, to provide a more level playing field between the Federal Housing Administration (FHA) and the conventional market, the annual percentage rate (APR) cap of Average Prime Offer Rate (APOR) + 150 bps needs to be increased to account for GSE LLPAs and private mortgage insurance. Setting the cap for QM Safe Harbor protection at 200 bps over APOR + 200 bps will limit the shift of riskier, high-LTV business to FHA, preserve greater private capital participation in the pricing of risk, and promote better taxpayer protection.

[i] https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/wp1902.aspx

[ii] JPMorgan Chase Institute: Trading Equity for Liquidity: Bank Data on the Relationship Between Liquidity and Mortgage Default. June 2019.

[iii] https://www.corelogic.com/blog/2019/07/expiration-of-the-cfpbs-qualified-mortgage-gse-patch-part-1.aspx

Blog: Buy a Home Without Breaking the Bank

Posted on by dcadmin

Buying a home is one of life’s biggest financial milestones, but people often think it’s out of reach because of the costs involved, including the myth that you have to put 20% down. The fact is, you don’t necessarily need to deplete all of your savings to qualify for a mortgage and you can purchase a home sooner than many people believe.

You aren’t alone in thinking you can’t afford a home right now. According to a recent report, 49% of non-homeowners stated that not having enough money for a down payment and closing costs was a major obstacle to purchasing a home. But when you look at the data, many aspiring homebuyers can afford to buy a home with less than 20%. In fact, another recent survey found that among first-time homebuyers who obtained a mortgage, approximately 80% had down payments of less than 20%.

There are several low down payment mortgage options available to you, such as conventional loans with private mortgage insurance (MI) or government-backed loans like those insured by the Federal Housing Administration (FHA).

For example, a qualified borrower can get a conventional loan with private MI for as little as 3% down. If he or she waited to save for a 20% down payment, it could take up to 20 years to save that amount, plus closing costs, for a $262,250 house — the national median sales price in 2018 according to the National Association of REALTORS®.  That wait time is trimmed down to seven years when buying a home with a 5% down, where the loan is sustainably backed by private MI.  Purchasing a home with less down using private MI can also help ensure you continue to have prudent savings, and can free up funds that you can use for other important home purchases – such as renovations, appliances, and furniture.

There are other mortgage options available to you as well, such as government-backed FHA loans that allow you to put down as little as 3.5%. However, unlike private MI, which can be canceled once you reach 20% equity in your home, the mortgage insurance premiums attached to FHA loans typically can’t be canceled and remain throughout the life of the loan.

It’s important to know what home loan option is best for you, and you should speak with a mortgage lender to help inform your decision. The bottom line, however, is that there are affordable low down payment home loan options out there, which could mean the difference between getting into your home sooner, allowing you to build wealth through home equity, or waiting for years while renting. By taking advantage of home loans backed by private MI, you can spend less time worrying about a down payment and more time enjoying your new home.

Getting into your new home with private MI and keeping more of your hard-earned money in the bank can be a very smart way to invest in your future. Check out www.LowDownPaymentFacts.com to learn more.

Statement: President Trump’s Executive Order on Housing Affordability

Posted on by dcadmin

WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), today issued the following statement on President Trump’s Executive Order on Establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing:

“We welcome the Trump Administration’s executive order on housing affordability because it recognizes the significant challenges that exist for many first time and repeat borrowers with finding affordable homes and seeks tangible steps to address the underlying issues. To support sustainable homeownership growth, home-ready borrowers need access to prudent, affordable mortgage credit while also ensuring the private sector, and not taxpayers, are on the hook for mortgage credit risk. The private mortgage insurance industry’s business is focused on facilitating sustainable mortgage finance credit to home-ready borrowers who do not have large down payments—helping more than one million individuals in 2018 attain homeownership sooner than they otherwise could—all the while shielding taxpayers from mortgage credit risk. USMI looks forward to continuing to work with the Administration and other stakeholders to find effective ways for homebuyers to gain access to prudent and affordable mortgages.”

 ###

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: June 2019

Posted on by dcadmin

Washington is buzzing with activity on the housing finance front, both in market developments and policy discussions as FHFA Director Calabria continues to outline his plans for Fannie Mae and Freddie Mac (“the GSEs”).
 
Also, June is National Homeownership Month! On June 5, USMI released a new report on how private mortgage insurance (MI) helps borrowers get into homes sooner. Brad Shuster, USMI Chairman and Executive Chairman of the Board of NMI Holdings, Inc., penned an op-ed in The Hill highlighting some key points from the report. In addition, the Federal Housing Finance Agency (FHFA) finalized their Single Security Initiative to create a common single-family securities program for the GSEs after the launch of the Uniform Mortgage-Backed Security (UMBS). Fannie Mae published the results of a nationally representative survey that revealed most consumers overestimate the requirements to get a mortgage. Lastly, the Senate confirmed two key positions for the U.S. Department of Housing and Urban Development (HUD) and the Senate Banking Committee scheduled a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions (SIFIs)?”

  • USMI releases state-by-state report on role of private MI. USMI released its second annual report on the role of private MI facilitating low down payment lending in all 50 states and the District of Columbia. The report found more than 30 million homeowners have been served by MI since 1957, including more than one million people in 2018 alone, and breaks down on a state-by-state basis, low down payment mortgage lending with private MI. It also provides an analysis of how long it would take those borrowers to save for a 20 percent versus a five percent down payment. The report finds that the top five states for the number of borrowers helped by private MI in 2018 were Texas, Florida, California, Illinois, and Ohio. The complete report on MI in the U.S. is available here.
  • Brad Shuster, USMI Chairman and Executive Chairman of the Board of NMI Holdings, Inc, penned an op-ed in The Hill. Shuster celebrated National Homeownership Month with an op-ed in The Hill that highlights the national conversation about how to best reform the U.S. housing finance system to sustain and grow homeownership in a safe and affordable way. Importantly, Shuster highlights the very important role that private MI plays in ensuring home-ready borrowers have access to sustainable low-down payment lending. Mr. Shuster notes that the recently released USMI state-by-state report, “showcases how private MI helps hard-working, home-ready families access the conventional mortgage market, even when they don’t have a large down payment.”

    Shuster also notes the importance for policymakers to understand the “long, time-tested role MI has played as they seek to create a more robust housing finance system. Private MI serves as protection against mortgage credit risk if a borrower defaults on their mortgage.”
  • FHFA sends Annual Report to Congress and Director Calabria calls for legislative reforms. Last week, FHFA sent its Annual Report to Congress, which included Director Calabria’s legislative recommendations for housing finance reform. In the FHFA 2018 Report to Congress, FHFA reported on a number of activities executed over the last year by the GSEs. While the report was drafted (and likely finalized) prior to Director Calabria’s confirmation (FHFA is required to submit the report each year before June 15), the Director wrote an opening letter to Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) to reiterate his priorities for the GSEs. Director Calabria underscored the need for reform, stressing that taxpayers remain exposed to undue mortgage credit risk and to urge Congress to enact legislation.

    In the letter, Director Calabria outlined specific recommendations for legislative reforms, including a request for Congress to give him authority to grant new charters to increase competition against the GSEs’ “duopoly” suggesting, “[t]o promote competition, Congress should authorize additional competitors and provide FHFA chartering authority similar to that of the Office of the Comptroller of the Currency.” He also called for Congress to grant FHFA additional authority to provide oversight of counterparties and suggested that FHFA should have greater discretion over the GSEs’ regulatory capital. While Director Calabria has noted in public speeches that only Congress has the authority to provide for an explicit government guaranty, he did not specifically call for Congress to establish an explicit government guaranty in his letter.
  • The GSEs complete their Single Security Initiative and launch UMBS. Earlier this month, Fannie Mae and Freddie Mac officially moved to issue the Uniform Mortgage-Backed Security (UMBS). According to HousingWire, the UMBS is a common security through which the GSEs will finance qualifying fixed-rate mortgage loans backed by one- to four-unit single-family properties. Previously, the GSEs only issued securities through their own programs/platforms, which meant an inevitable disparity and inconsistencies existed between the two. Fannie Mae’s program has historically been far more liquid than Freddie Mac’s, which created an imbalance between their trading volumes. Under the new initiative, FHFA will require Freddie Mac to remit homeowners’ mortgage payments to investors in 55 days rather than 45, which is consistent with Fannie Mae’s guidelines.

    Following the launch, Renee Schultz, Senior Vice President of Capital Markets at Fannie Mae, released a statement calling the launch “a major milestone that marks the successful implementation of the Single Security Initiative.” FHFA Deputy Director Robert Fishman stated, “[b]y addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation’s housing finance system.”
  • Fannie Mae consumer survey finds knowledge gap to obtain a mortgage. On June 5, Fannie Mae published the results of a survey of 3,647 Americans which found that most consumers vastly overestimate the requirements to obtain a mortgage. “The lack of mortgage qualification understanding is pervasive, even among current homeowners, those who say they are actively planning to purchase a home in the next three years, and those who successfully answered questions testing general financial literacy,” the researchers wrote. For example, when asked how much money a borrower is required to put down, 40% said they didn’t know. Of those who did have an idea, they cited 10% as a required minimum.  
  • Senate Banking Focuses on the GSEs as SIFIs. The Senate Banking Committee has scheduled a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?” The hearing is timely given FHFA Director Calabria has repeatedly said “the path out of conservatorships that we will establish for Fannie and Freddie is not going to be calendar dependent. It will be driven, first and foremost, by their ability to raise capital.” It also comes as policymakers and stakeholders wait for FHFA action following the agency’s Notice of Proposed Rulemaking on the Enterprise Capital Framework that was released last summer and for which the comment period closed in November 2018. USMI submitted a comment letter, which can be found here.
  • Senate confirms HUD nominees. Finally, yesterday, the Senate voted to confirm two HUD nominees: Seth Appleton to be the Assistant Secretary for Policy Development and Research; and Robert Hunter Kurtz to the be the Assistant Secretary for Public and Indian Housing.

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

Posted on by dcadmin

By Brad Shuster

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

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

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

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

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

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

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

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

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

Posted on by dcadmin

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

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

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

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

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

 

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

 

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

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

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

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

Posted on by dcadmin

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

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

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

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

###

U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Newsletter: April 2019

Posted on by dcadmin

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

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

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

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

Posted on by dcadmin


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

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

Dear Majority Leader McConnell and Leader Schumer:

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

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

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

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

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

Sincerely,

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

cc: United States Senate

For a full PDF of this letter click here.

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

Posted on by dcadmin

By Lindsey D. Johnson

 

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

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

 

MI Helps Low Down Payment Homebuyers

 

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

 

MI Protects Taxpayers and Government from Risk

 

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

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

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