Category: News

Blog: Want to Buy a Home? Do the Math

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 the median down payment for first-time homebuyers is 7 percent, according to the National Association of Realtors.

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

How can buying now save you money later?

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

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

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

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

Statement: USMI Applauds the U.S. Senate Banking Committee’s Approval of Mark Calabria as the New Director of Federal Housing Finance Agency—Urges Quick Senate Floor Consideration

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

“USMI applauds the Senate Banking Committee’s approval of Dr. Mark Calabria to serve as the next FHFA Director. Dr. Calabria’s extensive public service and deep understanding of the mortgage finance system will serve the Agency, Fannie Mae and Freddie Mac (the “GSEs”), market participants, and homebuyers well.

“Dr. Calabria has long been an advocate for greater taxpayer protection against mortgage credit risk, including the use of private mortgage insurance to guard taxpayers and the federal government from financial risk on low down payment lending. We are confident that Dr. Calabria will continue to recognize the importance of private mortgage insurance in the conventional mortgage market both in helping creditworthy low down payment borrowers qualify for home financing, while also protecting American taxpayers from undue mortgage credit risk. Over the last 60 years, private MI has helped more than 30 million individuals become homeowners. Right now, private mortgage insurance protection is the only source of private capital that is permanently dedicated to standing in a first-loss position in front of the GSEs and taxpayers on GSE-backed mortgages, through various credit cycles.

“USMI looks forward to working closely with Dr. Calabria to ensure that borrowers continue to have competitive options for low down payment mortgage finance credit in the conventional market and to protect taxpayers even further. USMI urges a quick Senate Floor vote and support for Dr. Calabria. For more than 60 years, private mortgage insurers have played a leading role in promoting affordable and sustainable homeownership and we look forward to building upon this important mission in the future.”

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

Op-Ed: Private insurance plays a critical part in home mortgage ecosystem

Posted on by dcadmin

 

 

 

 

By Lindsey Johnson

2/17/19

Housing finance reform remains a priority in Washington. Earlier this month, Senate Banking Committee Chairman Mike Crapo (R-Idaho) released a proposal to reform the government-sponsored enterprises, Fannie Mae and Freddie Mac.

Like many other proposals, including House Financial Services Committee Chairwoman Maxine Waters’ (D-Calif.) HOME Forward draft legislation, Chairman Crapo’s proposal recognizes the important role that private capital — and specifically private mortgage insurance — serves to facilitate homeownership for low down-payment borrowers and protect taxpayers from mortgage credit risk.

The nominee for director of the Federal Housing Finance Agency (FHFA), Mark Calabria, recently appeared before the Senate Banking Committee as part of his confirmation process. He’s an individual who appreciates the benefits that private mortgage insurance extends beyond protecting the government and taxpayers.

Private mortgage insurance remains the longest serving, time-tested way to help low down-payment borrowers qualify for home financing in the conventional market.

Our nation’s mortgage finance system is one that must balance access to credit for consumers while also shielding taxpayers. Fortunately, private mortgage insurance is uniquely and permanently dedicated to serving both objectives through all economic cycles. As such, it should remain a critical piece of any future, reformed system.

Access to affordable, low down-payment mortgages is understandably top-of-mind for many policymakers. While there is an important role for government and taxpayer-backed programs to play in the broader system, any comprehensive reform should first encourage the greater use of private capital that ensures access to affordable low down-payment mortgages in the conventional market.

Fortunately, there is generally bipartisan agreement around this principle. Facilitating this kind of mortgage lending is precisely the purpose of private mortgage insurance, which has helped more than 30 million families secure home loans over the last six decades — many of whom were first-time or middle-income homebuyers.

Last year, more than 1 million homeowners qualified to purchase or refinance their home thanks to private mortgage insurance. Of these homeowners, nearly 60 percent were first-time homebuyers and more than 40 percent had incomes below $75,000.

Congressional leaders and the Trump administration must reform the housing finance system into one that works for all Americans by protecting taxpayers while also ensuring access to affordable mortgage financing.

The Harvard Joint Center for Housing Studies projected that the U.S. would add 13.6 million households between 2015 and 2025, which means affordable low down-payment options must be part of the equation.

Mortgage insurance companies support the government-sponsored enterprises and mortgage lenders in the origination of low- to moderate- income mortgage programs that address affordable housing needs of local communities.

The private mortgage insurance industry stands ready to continue its role as the solution to enable millions of families to achieve homeownership.

A version of this op-ed originally appeared in The Hill on February 17, 2019.

Newsletter: February 2019

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

  • Senate Banking holds confirmation hearing on FHFA Director nominee, Mark Calabria. On February 14, the SBC held a hearing on Mark Calabria’s nomination to serve as FHFA Director. At the hearing, Dr. Calabria expressed his intent to make the FHFA a “world class regulator” and promote a “well capitalized, strong system that preserves the 30-year mortgage and does provide access to affordable housing.” While he acknowledged that the FHFA can take certain actions to strengthen the GSEs, Dr. Calabria stressed that fundamental changes to the housing finance system must be done by Congress. During exchanges with members of the Committee, Dr. Calabria stated his support for moving away from a system that privatizes gains while socializing losses and explained that the ultimate goal should be a framework with sufficient capital and regulation that allows the GSEs to facilitate affordable housing for creditworthy borrowers. USMI released a statement on Dr. Calabria’s nomination, which can be found here.
  • Senate Banking Chairman Crapo releases GSE reform outline. SBC Chairman Mike Crapo’s (R-ID) housing reform outline serves as a blueprint for comprehensive bipartisan reform efforts. It builds off of other proposals that put into place “multiple private guarantors” to guarantee the timely repayment of principal and interest to investors of eligible mortgages that are securitized through a platform operated by Ginnie Mae. The outline also requires, among other things, that the FHFA establish a capital requirement for all approved guarantors and require that all private guarantors engage in credit risk transfer. In a statement, USMI noted that “the reform plan covers many areas and [USMI] is particularly pleased that Chairman Crapo recognizes the importance and value of private mortgage insurance in enabling access to low down payment conventional mortgages while protecting taxpayers at least to the levels that they are protected today.”
  • House Financial Services holds hearing on housing challenges. On February 13, the HFSC held a hearing that examined housing challenges in rural communities, including homelessness, rental housing, and homeownership, as well as legislative proposals to address aspects of these issues. As Chairwoman Maxine Waters (D-CA) noted, the hearing marked the “very first time that the full committee has convened a hearing focused entirely on homelessness” and discussed a bill that she introduced last congress that would allocate more than $13 billion over five years to programs to prevent homelessness. Chairwoman Waters is expected to reintroduce the bill this Congress. This will be a priority for the HFSC in the 116th Congress and Chairwoman Waters emphasized the need for “proactive solutions to ensure that every American has a safe, affordable place to call home.”
  • House Financial Services Chairwoman Waters releases housing finance reform priorities. Chairwoman Waters similarly outlined her agenda for housing reform, which seeks to address the longtime conservatorship of the GSEs. Notably, she highlighted the importance of private mortgage insurance (MI) in any future reformed system, stating that one of her main priorities is to ensure “sufficient private capital is in place to protect taxpayers.” The list of principles also includes requiring transparency to ensure a level playing field for all financial institutions and maintaining access for all qualified borrowers that can sustain homeownership. HFSC Ranking Member Patrick McHenry (R-NC) sent a letter to Waters requesting she convene hearings in critical areas including on “government-sponsored enterprises and the role of the federal government in mortgage finance to explore paths to ending the government conservatorship of Fannie Maeand Freddie Mac” and the “continued oversight of the Financial Accounting Standards Board (FASB) and its Current Expected Credit Loss (CECL) Accounting Standard.”
  • Government changes course on question of FHFA constitutionality. Recently, the FHFA filed a supplemental brief with the S. Court of Appeals for the Fifth Circuit stating that it will no longer defend the constitutionality of the FHFA’s single-director leadership structure in court. This ruling comes as the result of a lawsuit brought by Fannie Mae and Freddie Mac shareholders who have challenged the structure of the FHFA and the so-called “Third Amendment Sweep” by the Treasury Department. In July 2018, the federal appeals court reversed a previous court’s decision and agreed with shareholders that the FHFA’s structure was unconstitutional.
  • USMI’s President testifies before Congress. At the end of December, Lindsey Johnson testified before the HFSC in a hearing entitled “A Legislative Proposal to Provide for a Sustainable Housing Finance System: The Bipartisan Housing Finance Reform Act of 2018;” a bill introduced by former HFSC Chairman Jeb Hensarling (R-TX), and Reps. John Delaney (D-MD) and Jim Himes (D-CT).  USMI’s testimony addressed several important housing finance topics and discussed the role private MI can play in a reformed housing finance system, specifically in enabling homeownership while protecting taxpayers and the government from mortgage credit risk. She also highlighted key improvements to the industry that make it more resilient going forward.  Specific to the draft legislation, Johnson provided several observations including that private MI is compatible with most proposals for reform because it is done at the loan level, and therefore the credit protection travels with the loan from the first day it is originated whether the loan is placed onto a lenders’ balance sheet, sold to an investor, or sold into a securitization pool. USMI’s testimony also provided several recommendations for the draft legislation, chief among them that any proposal should rely on loan level credit enhancement done by entities that can manage mortgage credit risk through all market cycles. During the hearing, Rep. Andy Barr (R-KY) touted the value of MI stating: “I certainly agree that we need more PMI and we need more credit risk transfers, and the more private capital that we can get in here, the better. Even if we do need a federal guaranty, let’s make sure that private capital has a robust first lost position.” The full list of witnesses and their testimonies can be found here.

Statement: Senate Banking Committee Chairman’s Outline for Reform of Fannie Mae and Freddie Mac

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WASHINGTON — Lindsey Johnson, President of U.S. Mortgage Insurers (USMI), today issued the following statement on the outline released today by Senate Banking Committee Chairman Mike Crapo (R-ID) on proposed reforms to Fannie Mae and Freddie Mac (the GSEs) and the housing finance system:

“Today Chairman Crapo released a thoughtful outline to reform the GSEs in order to put the housing finance system on more stable footing. The reform plan covers many areas and USMI is particularly pleased that Chairman Crapo recognizes the importance and value of private mortgage insurance in enabling access to low down payment conventional mortgages while protecting taxpayers at least to the levels that they are protected today.  Ten years after conservatorship of the GSEs, it is essential that meaningful reforms be done to better protect taxpayers and to ensure consumers will have access to mortgage finance credit through all market cycles.

“USMI is pleased to see Chairman Crapo provide these ideas for reform and we look forward to working with his office and the Committee on the details of these concepts.  We are committed to working with the Senate, House, and the Administration to promote reforms that put more private capital in front of taxpayer risk and to create a more sustainable housing finance system that works for consumers, market participants, and taxpayers.

“For more than 60 years, MI has provided effective credit risk protection for our nation’s mortgage finance system and helped 30 million families become homeowners.  This time-tested form of private capital stands ready to continue minimizing taxpayer risk while ensuring that mortgage credit remains accessible and affordable.”

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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 — added cost to homebuying or smart way to get in?

Posted on by dcadmin

The homebuying process is exciting, but can also seem fraught with added costs, like a home inspection, title insurance and closing costs. And if you can’t afford a full 20 percent down payment on a conventional home loan, then you will most likely pay for private mortgage insurance (MI). Some people consider private MI yet another added cost, but it helps creditworthy middle-income homebuyers qualify for home financing sooner with a low down payment. Is it really an added cost if it saves time and money in the long run?

For most people, low down payment home loan options include conventional loans with private MI and government-backed loans like those offered by the Federal Housing Administration (FHA). While comparable, each of these options has important differences. For example, the minimum down payment for an FHA mortgage is 3.5 percent while it’s only 3 percent on a conventional, privately insured mortgage.

Another key feature of private MI is that it can be canceled when a borrower reaches 20 percent equity in his or her home. Borrowers who purchase a home with private MI can typically cancel it within 5 to 7 years, resulting in their monthly bill going down. Private MI’s cancelability makes it a more affordable option over FHA-backed mortgages, which typically require mortgage insurance premiums for the entirety of the loan term. Both are offered by most mortgage lenders, so it’s smart to ask a loan officer for both options so you can compare and do the math.

The myth that a homebuyer needs 20 percent down to obtain a mortgage is simply not true. Low down payment mortgages are widely available and used every day across the country. In 2018, the National Association of Realtors found that first-time homebuyers typically put down 7 percent, while repeat buyers put down an average of 16 percent. Many homebuyers choose a lower down payment option to preserve some savings for home improvements or save for other goals. The time it could take to save up a 20 percent down payment is significant. On average, it could take up to 20 years to save a full 20 percent, plus closing costs, for a $257,700 house — the national median sales price. With home prices on the rise, the amount of time it takes to save up could only increase. Private MI can mean the difference between getting into the home of your dreams sooner or waiting for years.

For over 60 years, more than 30 million homeowners of all backgrounds have used private MI to successfully buy their homes. In the past year alone, private MI helped more than one million borrowers nationwide purchase or refinance a mortgage. According to a study by U.S. Mortgage Insurers, 56 percent of purchase borrowers were first-time homebuyers and more than 40 percent had incomes below $75,000.

For decades, millions of homeowners and prospective homebuyers have relied on private MI to help them affordably and responsibly purchase their homes — in turn helping them build personal wealth. Today’s historically low mortgage interest rates are a good reason to buy a home now. It is estimated that in 2019, the average rate for a 30-year fixed-rate mortgage will be around 5 percent. Borrowers should take advantage of these historically low mortgage interest rates because experts forecast that primary mortgage rates are on the rise.

Getting a mortgage 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 lowdownpaymentfacts.orgto learn more.

Statement: On the Intent to Nominate Mark Calabria as FHFA Director

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

“USMI applauds the nomination of Mark Calabria to serve as the next FHFA Director. Dr. Calabria is a respected housing finance expert and longtime public servant who understands the intricacies of the housing and mortgage finance markets. His extensive housing experience in both the public and private sectors, including his role in crafting the Housing and Economic Recovery Act of 2008, will allow him to immediately tackle the important issues facing our housing finance system. Dr. Calabria has been a long-time advocate for greater taxpayer protection against mortgage credit risk, including promoting the greater use of private mortgage insurance to further insulate the federal government and taxpayers from mortgage related risks. We are confident that as FHFA Director, Calabria will continue to recognize the importance of private mortgage insurance in the conventional mortgage market and work to ensure that private capital plays its appropriate role in enabling access to homeownership for low-down payment borrowers while also protecting the federal government and American taxpayers against mortgage credit risk.

“We look forward to working closely with Dr. Calabria to grow the role of permanent sources of private capital in shouldering more risk in front of taxpayers in the housing market. For more than 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.

Blog: Private Mortgage Insurance Is Helping First-Time Homebuyers Become Homeowners

Posted on by dcadmin

By Lindsey Johnson

A myth about homeownership that discourages many prospective homeowners is that they need a 20 percent down payment to obtain a home loan. Not true! What many borrowers do not realize is that they can qualify for a mortgage with significantly less than 20 percent down. This is particularly true when it comes to first-time homebuyers.

A recent survey from the National Association of REALTORS® found that among first-time homebuyers who obtained a mortgage, more than 70 percent made a down payment of less than 20 percent. What’s more, according to Genworth Mortgage Insurance’s August 2018 “First-Time Homebuyer Market Report,” 66 percent of all homebuyers using low down payment mortgages were first-time buyers, and 79 percent of all first-time homebuyers used some form of low down payment mortgages.

As first-time homebuyers consider taking the exciting leap into homeownership, it’s important for them to fully understand all the home loan options available in the market. Of the variety of home loans available, conventional loans with private mortgage insurance (MI) stand out as one of the most competitive and affordable paths to homeownership.

U.S. Mortgage Insurers (USMI) recently released a report highlighting how MI helps bridge the down payment gap in the United States and promotes homeownership. Importantly, the report confirmed what has long been known: MI makes it easier for creditworthy borrowers with limited down payments to access conventional mortgage credit. Specifically, the report found:

  • MI has helped nearly 30 million families nationally purchase or refinance a home over the last 60 years
  • In 2017 alone, MI helped more than one million borrowers purchase or refinance a home
  • Of the total 2017 number, 56 percent of purchase loans went to first-time homebuyers and more than 40 percent of those borrowers had annual incomes below $75,000, which further demonstrates that MI serves middle-income households
  • At the state level, Texas ranks first in terms of the number of homeowners (79,030) who were able to purchase or refinance a home with MI in 2017. This was followed by California (72,938), Florida (69,827), Illinois (47,866), and Michigan (41,810)

Data show that today many Americans are spending more of their income on rent than they are on mortgage payments. From 1985 to 2000, the share of income spent on mortgage payments was 21 percent; in Q2 2018 it was 18 percent. Conversely, from 1985 to 2000 the share of income spent on rent was slightly higher at 26 percent and has risen to 28 percent as of Q2 2018. As many individuals and families look to make the step from renting to owning their own home to create greater stability and build long-term equity, it’s essential that these individuals have prudent low down payment options – such as private MI – available for their future homeownership needs.

In addition to the wealth creation that homeownership fosters, today’s historically low mortgage interest rates are a good reason to buy a home now. Over the course of nearly 35 years, the housing market has experienced an extraordinary decline in mortgage interest rates. In 1981, the average rate for a 30-year fixed-rate mortgage stood at over 18 percent; it stood at approximately 4.72 percent at the end of September 2018. Borrowers should take advantage of these historically low mortgage interest rates because housing finance experts forecast that this interest rate decline is over, and primary mortgage rates are on the rise.

Homebuyers shouldn’t sit on the sidelines and put off buying the home of their dreams simply because they aren’t in the position to put 20 percent down. Since 1957, MI has helped millions of Americans – particularly first-time homebuyers – become successful homeowners, and it will continue to be a foundation of the housing market and a resource for borrowers in the years to come.

Statement: FHA’s Annual Report to Congress

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Report Underscores the Importance of Private Mortgage Insurance for Low Down Payment Lending While Government-Backed FHA Financial Health Not Yet Out of the Woods

 

WASHINGTON— Lindsey Johnson, President of USMI, released the following statement on the Federal Housing Administration’s (FHA) “Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund (MMIF) Fiscal Year 2018”:

“Today, the FHA released its 2018 Annual Report to Congress on the financial status of its Mutual Mortgage Insurance Fund (MMIF). According to the report, the MMIF’s capital ratio stands at 2.76 percent, up from 2.18 percent last year and slightly above the statutory requirement of 2 percent. The FHA, which insures roughly $1.3 trillion in mortgage credit risk, is an integral piece of the housing finance system. In addition to risks in the reverse program that still exist, the report also highlights that cash-out refinances continue to grow exponentially at FHA, comprising 63 percent of all FHA refinance transactions—as well as an increase in the number of mortgages with very high debt-to-income ratios. This year’s report underscores the need to further put FHA on more stable financial footing, so it can continue to serve low- and moderate-income borrowers who need it most.

“This report is the first under the leadership of FHA Commissioner Brian Montgomery, a seasoned mortgage finance expert who previously served as FHA Commissioner under President George W. Bush during the last housing crisis – a time of unprecedented market stress. Commissioner Montgomery appreciates the importance of properly managing the FHA and returning it to its core mission and intended role in the housing market, which is to focus on borrowers who truly need its 100 percent taxpayer-backed home loans. We agree with Commissioner Montgomery’s statement in the Actuarial Report that one of FHA’s guiding principles should be appropriately managing risks on behalf of borrowers, lender participants, and the U.S. taxpayer. As of September 30, 2018, the MMIF Capital Ratio was 2.76 percent, slightly above the 2.00 percent required by Congress. While an increase from Fiscal Year 2017, this is a thin margin, and taxpayers should never be put at risk again.”

“The FHA has been and will continue to be a critical participant in the housing finance system, but its current oversized role and weak financial health remain a cause for concern. The FHA must continue to refocus on its core mission and scale back its expanded footprint that grew significantly during the great recession.

USMI also agrees with Commissioner 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. Fortunately, there is a robust and available private market today through private mortgage insurance (MI) that is ready to help low-down payment borrowers become homeowners. Private MI  has successfully worked to ensure that creditworthy borrowers have access to safe, sustainable and affordable mortgage options for more than 60 years, and USMI will continue to work with FHA, Congress and the Administration to foster a more robust housing finance system that relies on a coordinated and consistent housing policy so private capital takes more of the credit risk in the housing markets.”

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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: Areas of Alignment for Administrative Reform

Posted on by dcadmin

September marked the 10th anniversary of the GSEs being placed into conservatorship and there is growing recognition that Congress may not be able to tackle the complex issue of housing reform until 2019 or perhaps even later. But not all aspects of housing reform need to wait for action by Congress. USMI has produced the following white paper to assist the Trump Administration, particularly the Department of Treasury and the independent Federal Housing Finance Agency (FHFA), in identifying the key areas where the Administration should focus its efforts and specific steps the Administration can take to put the housing finance system on a more sustainable path. USMI provides specific recommendations to:

  • Reduce the duopolistic market power of the GSEs
  • Increase transparency
  • Expand private capital and reduce taxpayer risk
  • Promote a strong regulator that establishes uniform standards and uses transparent processes to assess the GSEs’ activities and products

While reforming the GSEs and putting the housing finance system on a more stable, sustainable path is the primary focus of this paper, it is essential that reform is not done in a vacuum. True housing finance reform should also address the Federal Housing Administration (FHA) and dynamics between private and government-insured lending channels to balance taxpayer protection with access to mortgage finance. Actions taken under Administrative reform could further reduce taxpayer risk, level the playing field between the GSEs and private market participants, and provide greater transparency regarding GSE pricing and practices. Further, Administrative reforms could be the catalyst needed to break the legislative logjam and enable Congress to enact comprehensive housing reform legislation.

The full paper can be downloaded here. Below, USMI has outlined 11 key takeaways for policymakers to consider when contemplating the future of housing finance. A PDF of these recommendations can be downloaded here.

Op-Ed: PMI must play crucial role in housing reform

Posted on by dcadmin

A version of this piece originally appeared on Scotsman Guide on September 25, 2018 and was written by USMI Chairman Bradley Shuster. 

Government-backed conventional mortgages totaled approximately $5.3 trillion as of summer 2018. As every follower of the mortgage finance system knows, the guarantors of this multi-trillion-dollar mortgage credit risk—Fannie Mae and Freddie Mac (the GSEs)—have remained under government control since being placed into conservatorship in 2008.

While GSE reform is contemplated by Congress each year, holistic legislative reform remains elusive. It’s time for our federal elected officials to put the GSEs on a more sustainable path so U.S. taxpayers don’t continue to bear the burden of undue mortgage credit risk.

There is encouraging news, however: some areas of reform have received consistent bipartisan support. The use of private capital to transfer credit risk away from taxpayers is widely supported by housing experts, members of Congress from both sides of the aisle, and the White House. There are a number of ways to do this, and over the past several years, the GSEs have been exploring new programs including transferring second-loss risk (so-called “mezzanine risk”) through credit risk transfer (CRT) transactions.

For over 60 years, private mortgage insurance (MI) has served as a significant means for transferring mortgage credit risk away from the federal government and taxpayers. This is for good reason: private MI is one of the only forms of loan-level credit enhancement positioned in a first-loss position to lenders and the GSEs—transferring the risk before it ever reaches the GSEs’ balance sheets. Private MI has helped nearly 30 million families become homeowners, including many first-time homebuyers and low- to moderate-income borrowers, by allowing them to receive prudently underwritten mortgages with as little as three percent down. In fact, private MI helped more than one million borrowers purchase or refinance a mortgage in 2017 alone and 56 percent of purchase loans went to first-time homebuyers. Further, private MI not only helps put families in homes but also keeps them there by being responsive to troubled borrowers and working with homeowners to avoid default with prudent modifications.

Since the financial crisis, the MI industry has taken important steps to strengthen and enhance its risk protection capabilities, particularly with the new Private Mortgage Insurer Eligibility Requirements (PMIERs) enacted in 2015, which nearly doubled the industry’s pre-crisis capital requirements. The industry has also improved its claims processes through updated Master Policy Agreements, which provide lenders with greater clarity about when and how the industry pays claims. Today, more than $930 billion in GSE mortgages have private MI coverage and the industry has covered more than $50 billion in claims since the GSEs entered conservatorship.

When a mortgage insurer pays a claim, it’s a claim that neither the lender nor taxpayers (for the GSEs) have to shoulder. It’s not just claims though; the MI industry is a leader in mortgage underwriting. As a loan level product, private MI brings to the table a second set of eyes in the underwriting process, which helps to approve low down payment borrowers for home financing while ensuring these borrowers meet today’s prudent lending requirements. This is where private MI has unique advantages over other forms of credit enhancement, and why it’s essential private MI remains a fundamental component of the way the GSEs transfer credit risk in any reformed system.

The GSEs and the Federal Housing Finance Agency (FHFA), as conservator and regulator, are experimenting with other CRT mechanisms as Congress considers reform. These different CRT mechanisms are similar to how mortgage insurers manage and distribute their own credit risk exposures. Importantly, unlike some other forms of opportunistic capital, private MI is consistently available across market cycles, ensuring borrowers will continue to have access to affordable mortgage credit even during bad economies and that taxpayers will consistently have meaningful protection against mortgage credit risk. Importantly, mortgage insurers do not just buy and hold mortgage credit risk. Over the years, the MI industry has demonstrated increasing sophistication in evaluating and managing this long-tail mortgage credit risk. For decades, the MI industry has actively participated in reinsurance transactions in the normal course of business to disperse risk to enhance its capital allocation and manage its own risk exposure.

More recently, the industry has also participated in various capital markets transactions. In April 2017, National MI (NASDAQ: NMIH) successfully completed its first securitization of MI risk with the issuance of more than $200 million of insurance-linked notes and this July announced the pricing of $264.5 million of 10-year mortgage linked notes. These securitizations not only help disperse mortgage credit risk, but also free up capital that can be used to help more borrowers purchase homes. Other MI companies are participating in similar securitizations and these transactions have established the MI industry as a nimble and innovative player in the housing and mortgage sector. Since 2013, U.S. Mortgage Insurers (USMI) members have transferred to the global capital and reinsurance markets $34 billion of risk, covering $160 billion of primary risk written.

What happens during a stressed market cycle is important to consider. The reality is much of what the GSEs have been experimenting with are forms of CRT that are not tied to housing and therefore will be unavailable for this type of mortgage credit risk when the housing sector is under stress. That’s one of the reasons why private MI remains an essential form of risk transfer for the GSEs. If the GSEs were to rely on their own balance sheets or an MI alternative that suddenly became unavailable, the government and taxpayers would be unduly exposed to risk.

And the MI industry is poised and capable of doing even more in any reformed housing system. While it is prudent for the GSEs to transfer second-loss risk into the capital markets, the MI industry remains active in underwriting and managing new credit risk—thereby reducing risk in the overall mortgage finance system—and remains committed to providing credit enhancement that protects taxpayers while ensuring borrowers have access to low down payment lending.
The MI industry and its products are among the most sophisticated and experienced in the housing finance system when it comes to risk management. The MI industry has proven to be unparalleled in its innovation and leadership in promoting homeownership for the last six decades and has much more to offer American homeowners. Lawmakers and policymakers have important work ahead of them to reform the GSEs, and the MI industry stands at the ready to ensure its invaluable services are part of any new system.

Bradley Shuster is the Chairman of the Board and CEO of National MI, and serves as current Chairman of U.S. Mortgage Insurers (USMI).

Statement: FHFA’s Updates to Private Mortgage Insurers’ Eligibility Requirements (PMIERs)

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President Lindsey Johnson issued the following statement on the Federal Housing Finance Agency’s (FHFA) newly released changes to its Private Mortgage Insurer Eligibility Requirements (PMIERS). PMIERS are a set of requirements implemented in 2015 for private mortgage insurance companies to be approved to insure loans acquired by Fannie Mae and Freddie Mac:

“The existing robust capital and operational standards brought by PMIERS have provided exactly what Fannie Mae and Freddie Mac (the GSEs) and other market participants sought in the role of private mortgage insurers (MI)—greater confidence as permanent, dedicated sources of first loss credit risk protection and as trusted ‘second sets of eyes’ to protect long-term value in the housing finance system. PMIERs, which are the set of requirements for mortgage insurers to be approved to insure loans acquired by the GSEs, were developed after a public notice and comment period that the FHFA initiated in 2014. Since being implemented in 2015, PMIERs nearly doubled the amount of capital each mortgage insurer is required to hold, resulting in a minimum MI level of capital assets over 7 percent of risk insured. USMI member companies have maintained levels significantly over the PMIERs requirements, with each company holding millions in excess—and USMI members collectively holding nearly $2.6 billion in excess of these requirements.

“USMI members appreciate the opportunity to provide feedback to the GSEs and FHFA on proposed changes and the incremental improvements made in PMIERs 2.0. We look forward to continuing to work with the GSEs and FHFA in the future to build upon the strong credit enhancement that the mortgage insurance industry provides to protect lenders, the GSEs, and taxpayers. As publicly traded companies, private MIs have a keen interest in ensuring that the process for the development of any changes to PMIERs is transparent and that proposed changes are based on an econometric rationale that can be modeled and explained to investors, industry stakeholders and, importantly, to borrowers. Further, as the only GSE counterparties that have gone through a public notice and comment period for capital and operational requirements when PMIERs were initially developed and implemented, and that are currently transparent to all market participants and stakeholders, there should be greater consistency in the development and application of these same or equivalent capital standards for all sources of credit enhancement who take the same credit risk. This consistency will better ensure GSE counterparties are well capitalized, highly-regulated, are able to protect taxpayers through different market cycles, and will promote a more level playing field.

“PMIERs reflect that today’s MIs are highly capitalized, reliable counterparties. The MI industry provided significant protection against mortgage-related credit risk through the last financial crisis—paying more than $50 billion in claims through the downturn—before PMIERs were implemented. Today, the industry is on much better footing to further protect taxpayers during the next downturn.

“For more than 60 years, private MI has helped more than 30 million families qualify for a mortgage by bridging the gap between the down payment and home financing. In 2017 alone, MI helped more than one million borrowers safely purchase or refinance a mortgage. Today, the MI industry is stronger than it has ever been, and the requirements under PMIERs makes the industry even better poised to protect the GSEs and American taxpayers from mortgage credit risk 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.