Category: News

Blog: Celebrating Black History Month – Q&A with Congressman Emanuel Cleaver

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In our series celebrating Black History Month, USMI had the honor to speak with Congressman Emanuel Cleaver (D-MO), a member of the U.S. House of Representatives since 2005 who serves on the House Financial Services Committee and chairs the Subcommittee on Housing, Community Development, and Insurance. Congressman Cleaver shared with USMI his thoughts on increasing Black homeownership in the United States and other topics related to the mortgage finance sector in 2021 and beyond.  

While homeownership has risen over the past few years, so has the growing recognition of the significant racial and economic disparities in mortgage lending and access to affordable mortgage credit, especially in the wake of the COVID-19 pandemic. Of the 2.6 million homeowners that are currently past due on their mortgages, as reported by the Mortgage Bankers Association, over half of them are people of color, according to Census Bureau Household Pulse Survey data from January 20 to February 1, 2021. This situation presents an opportunity for policymakers to correct inequities and better support minority homebuyers. 

For more than 60 years, the private mortgage insurance (MI) industry has enabled more than 33 million low- and moderate-income Americans to attain affordable and sustainable homeownership in the conventional market. In the past year alone, nearly 60 percent of borrowers who purchased their home using private MI were first-time homebuyers, and more than 40 percent had incomes of $75,000 or less. It is a goal of the MI industry to work with regulators and lawmakers to increase minority lending within the conventional mortgage market, and Black History Month is a perfect time to advance this conversation.  

The below Q&A with Congressman Cleaver is part of a USMI series during the month of February to highlight prominent Black leaders in the housing finance and mortgage industries to discuss their work and perspectives on the goal of increasing Black homeownership in America and other key topics in housing finance.

(1) How does Black History Month intersect with the issue of homeownership? 

Black History Month is a time for the nation to celebrate and reflect on the legacy of African Americans — our contributions to American culture and how far we’ve come as a community. So when I think of the intersection between homeownership and Black History Month, I think about just how much work we still have to do as a society. In 1960, the Black homeownership rate in the United States was 38 percent and white homeownership was 65 percent. In 2015, less than 38 percent of Black families in Kansas City owned a home and the racial homeownership gap has only widened across the country. While we look back and celebrate the contributions of the Black community during Black History Month, we also must look forward and take action on the remaining challenges in front of us. Closing the racial homeownership gap is certainly one of the biggest mountains we still have to climb. 

(2)What are the top two or three 2021 priorities that lawmakers and the new Administration should focus on related to housing finance? 

I know President Biden has looked at this issue with the seriousness it deserves because I’ve spoken with him about it directly. If you look at the Administration’s plans, it will help strengthen underserved communities by investing in them through housing — and a major component of that is through housing finance. Lawmakers must move with urgency to end modern day redlining by strengthening the Community Reinvestment Act. We cannot allow lenders to discriminate against individuals based on where they live, and we must ensure that fintechs and other non-bank lenders are held to as strong of standard. The administration must also make it a high priority to hold discriminatory financial institutions accountable. Not only must the administration vigorously investigate discriminatory lending from financial institutions big and small, but when allegations of discrimination or unfair lending practices are found, they must take substantive action to rectify them. 

(3) Can greater homeownership racial equity be achieved in the next 5 to 10 years in America, and what must happen to increase the rate of Black homeownership?  

There is no question that we can achieve greater racial equity in terms of homeownership, but elected officials—from the President to Congress to Governors to Mayors—must make a concerted effort to address the inequity that still plagues our nation. Homeownership has long been considered the gateway to the middle class, which is why I believe it is where we should focus our attention if we are seeking to make our economy more equitable. There are a lot of policy actions that can get the ball rolling, such as reforms to the housing finance system, enforcement of fair housing laws, and increasing the supply of affordable housing stock, but one great place to start would be increasing funding and access to governmental down payment assistance programs. Because communities of color simply haven’t been afforded the same opportunities to build up generational wealth, it makes it difficult to afford the down payment on a house that opens the door to the middle class.  

Congressman Cleaver’s Biography 

Emanuel Cleaver, II is now serving his ninth term representing Missouri’s Fifth Congressional District, the home district of President Harry Truman. He is a member of the House Committee on Financial Services; Chair of the Subcommittee on Housing, Community Development, and Insurance; member of the Subcommittee on Oversight and Investigations; member of Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets; member of the House Committee on Homeland Security; and member of the Subcommittee on Border Security, Facilitation, and Operations.  

Having served for twelve years on the city council of Missouri’s largest municipality, Kansas City, Cleaver was elected as the city’s first African American Mayor in 1991. 

During his eight-year stint in the Office of the Mayor, Cleaver distinguished himself as an economic development activist and an unapologetic redevelopment craftsman. He and the City Council brought a number of major corporations to the city, including TransAmerica, Harley Davidson, and Citi Corp. Cleaver also led the effort, after a forty-year delay, to build the South Midtown Roadway. Upon completion of this major thoroughfare, he proposed a new name: The Bruce R. Watkins Roadway. Additionally, his municipal stewardship includes the 18th and Vine Redevelopment, a new American Royal, the establishment of a Family Division of the Municipal Court, and the reconstruction and beautification of Brush Creek. 

Cleaver has received five honorary Doctoral Degrees augmented by a bachelor’s degree from Prairie View A&M, and a master’s from St. Paul’s School of Theology of Kansas City. 

In 2009, Cleaver, with a multitude of accomplishments both locally and Congressionally, introduced the most ambitious project of his political career—the creation of a Green Impact Zone. This zone, consisting of 150 blocks of declining urban core, has received approximately $125 million dollars in American Recovery and Reinvestment funds. The Green Impact Zone is aimed at making this high crime area the environmentally greenest piece of urban geography in the world. This project includes rebuilding Troost Avenue, rehabbing bridges, curbs and sidewalks, home weatherization, smart grid technology in hundreds of homes, and most importantly, hundreds of badly needed jobs for Green Zone residents. 

During the 112th Congress, Cleaver was unanimously elected the 20th chair of the Congressional Black Caucus. 

In 2016, as Ranking Member of the Housing and Insurance Subcommittee, Cleaver successfully co-authored the largest sweeping reform bill on housing programs in 20 years, the Housing Opportunity Through Modernization Act, a bipartisan comprehensive housing bill that passed into law with a unanimous vote. 

In 2018, Congressman Cleaver received the Harry S. Truman Good Neighbor Award, the highest honor bestowed by the Harry S. Truman Good Neighbor Award Foundation. Past honorees include President Bill Clinton, the late Senator John McCain, and Justice Sandra Day O’Connor. 

Cleaver, a native of Texas, is married to the former Dianne Donaldson. They have made Kansas City home for themselves and their four children, and grandchildren. 

Letter: Comments on FHFA RFI on Appraisal-Related Policies

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The Honorable Mark A. Calabria
Director Federal Housing Finance Agency
400 7th Street SW Washington, DC 20019

Dear Director Calabria:

On behalf of U.S. Mortgage Insurers (USMI) and our member companies, we appreciate the opportunity to provide feedback on the Federal Housing Finance Agency’s (FHFA) initiatives to modernize appraisal processes and to the specific questions presented in the Request for Information (RFI) on Appraisal-Related Policies, Practices, and Processes. As a general matter, the private mortgage insurance (MI) industry understands and agrees with the FHFA that there are opportunities to modernize appraisal processes and to improve the quality of residential property valuation practices. There have been significant advancements in technology, data aggregation, and analytics throughout the mortgage finance industry that have positively impacted many professions and processes. Collateral risk assessment and real estate valuation can benefit from these same technological advancements if done appropriately. As Fannie Mae and Freddie Mac, collectively the government-sponsored enterprises (GSEs), seek to modernize their appraisal policies and collateral valuation technologies, USMI strongly believes that the FHFA should implement rules designed to ensure that innovations around the appraisal process are done when there is demonstrable benefit to the broader housing finance system, including greater transparency, efficiency, accuracy of property valuations, and lower costs for borrowers and market participants. While we provide specific comments, observations, and recommendations to many of the issues raised and questions posed in the RFI in our responses in Appendix A, our initial comments below focus primarily on the increased use of appraisal waivers through 2020, as well as specific observations related to the above 80 percent loan-to-value (LTV) segment of the market and recommendations to address areas of increased risks.

Balancing Innovation & Prudent Mortgage Lending

USMI and our member companies recognize that there is an opportunity through appraisal modernization to address many of the existing challenges within the appraisal process, including those that stem from the shortage of qualified appraisers in the market and the unique challenges in rural markets of getting appraisers and having comparable properties for valuations. Given the standardization role that the GSEs play within the marketplace, as well as their dominant market presence, there is an opportunity for industry stakeholders and the GSEs to come together to promote appropriate solutions that drive efficiencies and lead to more accurate valuations in a way that appropriately balances risk and operational flexibility.

At the same time, USMI members continue to appreciate the role of appraisers in the mortgage underwriting process, especially since automated or model-based solutions may not be appropriate for certain properties and transactions. Importantly, for homebuyers, an appraiser’s inspection report serves to affirm, when appropriate, the reasonableness of home price discovery via an arms-length negotiation.

USMI members also acknowledge that appraisal technology has the potential to improve the efficiency of the mortgage underwriting process, however it is critical that there be appropriate transparency, monitoring, and governance. Modernization should be accompanied by guardrails to minimize the risk of incorrect collateral valuation outcomes and any adverse effects on mortgage underwriting. Further, model weaknesses and discrepancies, and ways to mitigate for those weaknesses, should also be considered for determining when and how to use these technologies. It is important that FHFA establish policies that ensure collateral valuation, including the use of competing technologies, such as the two GSEs’ collateral valuation tools, are not a source of competition between the GSEs. When used inappropriately, these tools have the potential to increase risk beyond their expected benefits to the housing finance system.

Many of the ongoing appraisal modernization efforts by the GSEs have led to general process improvements, however it is very important to recognize that automated valuation models (AVMs) and other alternatives to a full appraisal are not appropriate for every property or transaction. USMI believes they should be used in limited circumstances, and only with appropriate guardrails, particularly for higher LTV mortgages where risk is higher and valuation errors may have greater significance.

Data Democratization

The GSEs’ appraisal modernization initiatives have significantly expanded data requirements during the mortgage origination process, with the burden often falling on lenders, mortgage insurers, and other market participants to provide data that informs mortgage underwriting. Industry stakeholders have worked closely with the GSEs since the 2010 launch of the Uniform Mortgage Data Program (UMDP) to implement data collection procedures and technologies to provide data to the GSEs. Despite industry’s commitment to the UMDP and increased data integrity of the Uniform Residential Appraisal Report (URAR), market participants currently do not have a great deal of access to this important data repository. Access to this data would improve market participants’ operations, ultimately benefitting homebuyers and the strength of the housing finance system.

USMI recommends that the FHFA initiate a process to make collateral valuation data available to the parties that contributed to the analysis and that are part of the underwriting process, including appraisers and appraisal management companies, lenders, private mortgage insurers, title insurance companies, investors, and data analytics providers. Greater insight into the GSEs’ collateral valuation technologies and processes will assist with analyses of individual mortgage transactions. Further, the FHFA should implement policies that require the GSEs to share more information about their AVMs, including the tolerances that are incorporated. Data democratization will greatly enhance transparency within the housing finance system and improve risk management practices and strategies across the market.

GSE Appraisal Waiver Policies

One element of the GSEs’ appraisal policies, practices, and processes that we believe warrants particular attention is the expanded use of appraisal waivers for high LTV refinance transactions. While both GSEs have had appraisal waiver programs for nearly a decade, specifically with some of the changes made during 2020, there has been a significant expansion of these programs during the mortgage underwriting process. The share of GSE-backed mortgages receiving appraisal waivers has surged, including a dramatic increase in the use of appraisal waivers for higher LTV loans.

As an industry that is exclusively focused on high LTV mortgage originations, USMI welcomes the opportunity to share our observations concerning the expansion of appraisal waivers in that segment of the market. Appraisal waivers can materially impact LTV ratios and the pricing and risk assessments associated with the GSEs’ guarantee fees, MI premiums, and loan-level capital requirements.3 Importantly, these considerations are more acute for higher LTV loans since the margin of error is slim for these mortgages and could expose the GSEs and the housing finance system to greater credit risk.4 Inaccurate valuations that result from appraisal waivers could enable delivery of loans with LTVs that arbitrarily – and inappropriately – misprice or eliminate MI credit risk protection. Additionally, automated and index-based valuations rely on broader price trends that can overshadow local or property-specific conditions that would point to higher LTVs. Furthermore, the different approaches to appraisal waivers by the two GSEs create frictions that appear to be incentivizing undesirable lender behaviors and further exacerbating these risks.

Industry Observations – Overall Increase in Appraisal Waivers

While the use of appraisal waivers has increased since the onset of the COVID-19 pandemic, the uptick was most notable when the GSEs expanded appraisal waiver eligibility to mortgages with LTVs up to 90 percent in the spring of 2020. Despite the changes that allowed for the significant increase of appraisal waivers, there was little transparency of data around why these changes were necessary, what outcomes they might have, and what guardrails were in place. In January 2020, approximately 85 percent of 80.01-90 percent LTV, rate/term refinance loans at the GSEs received full appraisals and only 15 percent of loans received appraisal waivers, exclusively through Fannie Mae’s program.5 There was a significant decrease in mortgages with full appraisals throughout 2020 and by October 2020, only about 50 percent of GSE-backed 80.01-90 percent LTV, rate/term refinance mortgages received full appraisals.

Industry Observations – AUS Shopping

As a general matter, USMI believes FHFA and the GSEs should establish clear guidelines to ensure that collateral valuation, including the use of different appraisal methodologies and models, is not a source of competition between the two GSEs. Following an internal study of “repeat address transactions” (i.e., transactions where data on the most recent valuation and a prior valuation are available), USMI member companies have noticed significant – and in some respects concerning – differences in valuations between the two GSEs’ respective appraisal waiver programs. FHFA should be mindful of the potential for systemic overvaluations with one of the GSEs’ programs when benchmarked to a local housing price index (HPI) and recognize the lack of transparency around the GSEs’ valuation technologies. This could manipulate the mortgage market and result in lenders’ increased utilization of a specific GSE’s automated underwriting and collateral valuation systems to receive favorable property valuations.

USMI members have also observed, and shared our observations with FHFA, that some lenders appear to be “AUS shopping” to optimize loan execution by testing Fannie Mae’s Desktop Underwriter (DU) and Freddie Mac’s Loan Product Advisor (LPA) for a potential appraisal waiver valuation “advantage.” Our industry has seen compelling evidence that lenders are increasingly running loans through both AUSs to determine which one allows the most “advantageous” property valuation. It is important to note that each GSE conducts a validation when it assesses its own model, a process that does not make presumptions about the other GSE’s model and where it may fail. Applying the two models to the same loan is inconsistent with how they’re validated and effectively undermines the credibility of the GSEs’ own validation processes. The GSEs themselves are aware of the “gaming” potential and USMI strongly encourages the GSEs to take actions to address this concern and prevent inappropriate gaming that might occur through the use of the appraisal waiver valuations.

Industry Observations – Compensating Factors for Appraisal Waivers

USMI members have conducted a forensic analysis of loan files with appraisal waivers and found that both GSE appraisal waiver programs consistently missed adverse site conditions that would have been apparent to a trained appraiser. A primary drawback of appraisal waivers is that they miss critical property data during the valuation process that should be collected and analyzed as part of the underwriting process. While property data need not be concurrent with a refinance transaction, recent data is important to industry participants, especially those with a vested interest in mortgage credit risk post-closing.

While the use of appraisal waivers has dramatically increased, there has been minimal transparency concerning whether the GSEs have specific credit policies regarding loan eligibility for their respective appraisal waiver programs. The expanded use of appraisal waivers should be accompanied by a transparent set of compensating factors for determining loan-by-loan waiver decisions. Data from 2020 suggests that at least one of the GSEs takes into account debt-to-income (DTI) ratio, credit score, and whether the borrower has a prior full appraisal on file. USMI believes these types of overlays are appropriate to mitigate the incremental risk of appraisal waivers. While not directly tied to collateral valuation, weaker DTIs and credit scores may correlate to deferred maintenance and property condition issues that go undetected when appraisal waivers are utilized.

Property data collection is a particularly important part of the valuation and underwriting processes. One appropriate guardrail for mortgages that receive appraisal waivers or other flexibilities would be to require a property inspection followed by a Desktop Review. One of the biggest challenges with the appraisal waiver programs is that property data collection is missed, and this policy would help mitigate the risk associated with underwriting a mortgage without a full appraisal.

Recommendations

Many of the appraisal modernization efforts of the GSEs over the years have led to general process improvements, however it is very important to recognize that AVMs and other alternatives to a full appraisal are not appropriate for every situation. For the reasons outlined above, USMI believes appraisal alternatives should be used in limited circumstances, and only with appropriate guardrails. To better tailor the use of appraisal waivers, it is critical that the GSEs’ programs be subject to robust oversight by FHFA and that strong governance policies be in place to promote transparency and facilitate data sharing with market mortgage market participants. It is especially important that the FHFA implement policies that recognize and speak to the unique risks associated with the use of waiver appraisals in the high LTV segment of the market. As the equity position on a mortgage decreases, the risk of loss severity can increase, and these mortgages cannot merely rely on amortization or home price appreciation (HPA) to guard against risk stemming from incorrect AVM valuations. FHFA and the GSEs should implement policies to address the potential for “gaming” to test and shop appraisal waiver programs to reduce LTVs and/or reduce or eliminate MI coverage requirements. Particular attention should be given to the 80 percent LTV threshold, which is a segment of the market that has historically been the largest contributor of GSE losses. The usage of appraisal waivers to “game” the 80 percent LTV segment to reduce or eliminate MI coverage shifts a greater burden of losses toward taxpayers and away from private capital. Further, while LTV is – to some degree – correlated to loan performance, guardrails such as the presence of compensating factors should be considered to inform policies that pertain to this specific segment of the market.

****************************

USMI appreciates the opportunity to share its views on these important issues with the FHFA. We welcome any questions you may have, as well as requests for data to supplement our observations and recommendations. USMI welcomes efforts by FHFA to properly balance innovation in the housing finance system with the need for transparent standards and appropriate protections.

Sincerely,

Lindsey Johnson
President

View the full letter as a PDF.

Blog: Celebrating Black History Month – Q&A with Lisa Rice, President and CEO of the National Fair Housing Alliance

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In our ongoing celebration of Black History Month, USMI reached out to prominent leaders in the housing finance and mortgage industries to discuss their work and perspectives on the goal of increasing Black homeownership in America. While homeownership has risen over the past few years, so has the growing recognition of the significant racial and economic disparities in mortgage lending and access to affordable mortgage credit, especially in the wake of the COVID-19 pandemic. Of the 2.6 million homeowners that are currently past due on their mortgages, as reported by the Mortgage Bankers Association, over half of them are people of color, according to Census Bureau Household Pulse Survey data for the period of January 20 to February 1, 2021. This situation presents an opportunity for policymakers to correct inequities and better support minority homebuyers.

For more than 60 years, the private mortgage insurance (MI) industry has enabled more than 33 million low- and moderate-income Americans to attain affordable and sustainable homeownership in the conventional market. In the past year alone, nearly 60 percent of borrowers who purchased their home using private MI were first-time homebuyers, and more than 40 percent had incomes of $75,000 or less. It is a goal of the MI industry to work with regulators and lawmakers to increase minority lending within the conventional mortgage market, and Black History Month is a perfect time to advance this conversation.

Lisa Rice, President and CEO of the National Fair Housing Alliance (NFHA), recently shared with USMI her thoughts on these issues and others, relating to the mortgage finance sector in 2021 and beyond

(1) How does Black History Month intersect with the issue of homeownership?

Race and homeownership are inextricably linked. Due to government-sanctioned discriminatory policies and practices that have been in place since the birth of this country, Black Americans have been systematically excluded from wealth-building opportunities such as homeownership. Redlining, which persists in various forms today, real estate sales discrimination, appraisal bias, lending discrimination, and tech bias are significant barriers that keep the dream of homeownership from becoming a reality for many Black Americans.

Moreover, structural barriers such as the dual credit market, segregation, and restrictive zoning ordinances create systemic impediments which significantly prohibit the ability of people of color to access fair housing and lending opportunities and perpetuates the racial wealth and homeownership gaps.

In fact, the homeownership rate for Black Americans is still where it was when the Fair Housing Act was passed in 1968; White homeownership is 73.4 percent; Hispanic homeownership is 47.8 percent; and Black homeownership is 42.7 percent. This translates to a homeownership gap between Blacks and Whites that is as wide now as it was in 1890. Black History Month is a key opportunity to shine a light on these issues, and we must work to address them year-round.

(2) What are the top two or three 2021 priorities that lawmakers and the new Administration should focus on related to housing finance?

We hope the new Congress and Administration will make the following policy goals a top priority:

  • Eliminating the dual credit market and creating access to sustainable and affordable credit for all;
  • Compelling federal agencies and local jurisdictions to remove barriers to housing inequality by Affirmatively Furthering Fair Housing and ensure that every neighborhood has the resources and amenities people need to thrive;
  • Putting in place a comprehensive infrastructure program to improve roads, bridges, housing, water access facilities, and other systems in an equitable manner;
  • Strengthening the nation’s fair housing and fair lending enforcement infrastructure; and
  • Creating greater fairness in the housing and financial services industries – this must include developing policies that promote more effective oversight for Artificial Intelligence (AI) tools.

(3) Can greater homeownership racial equity be achieved in the next 5 to 10 years in America, and what must happen to increase the rate of Black homeownership?

Groups like NFHA have spent years crafting policy recommendations and developing tools to help make homeownership racial equity a reality, so it’s certainly an achievable goal but our lawmakers and policymakers must have the will to translate ideas into reality. We are working with a broad range of stakeholders – including the Urban Institute, National Housing Conference, Center for Responsible Lending, National Association of REALTORS®, National Association of Real Estate Brokers, National Association of Hispanic Real Estate Professionals, and many others – through our Keys Unlock Dreams Initiative to add 3 million net new Black homeowners by 2030 and to achieve a 50 percent Latino homeownership rate by 2024. Through our Tech Equity Initiative, we are working to remove bias from all technologies used in the housing and financial services space.

We are optimistic, and we look forward to working with Congress and the new Administration to make this happen. In light of COVID-19, one of the first steps we will need to take is ensuring an even recovery from the pandemic and economic crisis – this means supporting small businesses in communities of color, passing a robust relief package with significant assistance for the hardest hit renters and homeowners who are facing eviction or foreclosure, and ensuring health care gets to those who need it. But beyond that, we will need to go back and fix the centuries-old structures that continue to cause uneven economic recoveries along racial lines every time our country faces a crisis.

Lisa Rice’s Biography

As President and CEO of the NFHA, Lisa Rice leads efforts by NFHA and its partners to advance fair housing principles and to preserve and broaden fair housing protections, expanding equal housing opportunities for millions of Americans.

Ms. Rice played a major role in crafting sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act and in establishing the Office of Fair Lending within the Consumer Financial Protection Bureau.

Prior to becoming President and CEO, she served as NFHA’s Executive Vice President and managed the organization’s resource development, public policy, communications, and enforcement divisions.

Ms. Rice is a member of the Leadership Conference on Civil and Human Rights Board of Directors, Center for Responsible Lending Board of Directors, JPMorgan Chase Consumer Advisory Council, Mortgage Bankers Association’s Consumer Advisory Council, Freddie Mac Affordable Housing Advisory Council, Urban Institute’s Mortgage Servicing Collaborative, and Quicken Loans Consumer Advisory Forum.

Member Spotlight: Q&A with Derek Brummer of Radian

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USMI has launched a new series that will spotlight one of our members every couple of months. For more than 60 years, private mortgage insurers have enabled more than 33 million low- to moderate-income Americans to attain affordable and sustainable homeownership in the conventional market.

The member spotlight series will focus in how the industry works to address several critical issues within the housing finance system including expanding access to the affordable mortgage credit for first-time and minority homebuyers, protecting taxpayers from undue credit risk, ensuring ample capacity for risk sharing with mortgage insurance (MI), and providing recommendations on ways to reform the system to put it on a more sustainable path for the long term.

First up in our series is a Q&A with Derek Brummer, President of Radian’s Mortgage Business and Chairman of USMI’s Board. Radian’s roots were planted in 1977. Over the years, Radian has grown with various strategic acquisitions to support the entire mortgage and real estate services lifecycle. It has built its business by keeping an eye on its ultimate purpose: making sustainable homeownership possible for more people, and it remains committed to removing barriers to homebuying. Brummer addresses the current state of the housing finance system, what policymakers can do to increase minority homeownership, and how Radian serves low down payment borrowers.

(1) How does Radian serve the first-time homebuyer market?

At Radian, we are committed to ensuring the American dream of homeownership responsibly and sustainably through products and services that span the mortgage and real estate spectrum. As a private mortgage insurer, we help low- and moderate-income borrowers who are not able to make a down payment of 20 percent to qualify for a conventional government sponsored enterprise (GSE) loan. In this important role, we offer a pathway for borrowers to obtain GSE loans, and therefore, greater optionality with respect to lenders that they may choose among, rather than being limited to the Federal Housing Administration (FHA) approved lenders. In our view, optionality is a key component of affordability and accessibility. In addition, our underwriting expertise allows us to serve as an important “second set of eyes” on credit risks, to ensure that borrowers who are ready to take the important step into homeownership are able to do so sustainably.

Last year, more than 1.5 million homeowners qualified to purchase or refinance their home thanks to private MI. Of these homeowners, nearly 60 percent were first-time homebuyers, and more than 40 percent had incomes below $75,000.

We believe there has never been a time that access to affordable and sustainable homeownership has been more important in our country, as we work together to support racial and economic equality and the very important role affordable homeownership plays in building wealth creation within diverse communities.

(2) What is your perspective on President Biden’s executive order to address racial equity through housing?

President Biden’s executive order signals an important commitment to furthering housing equity and redressing housing policies that have had a damaging impact on our society for far too long. The fact that the President signed it during his first week in office is indicative of the importance that the new Administration is placing on this issue. While homeownership has been on the rise over the past few years, and even increased during the COVID-19 pandemic, a deeper look at who is able to become a homeowner reveals significant racial and economic gaps. With a growing recognition in Washington of this disparity and a renewed focus on increasing financial security for Black and Hispanic families, policymakers and the housing industry have the opportunity to correct inequities and sustainably increase minority homeownership.

U.S. Census data for the third quarter of 2020 shows that homeownership among White households stands at nearly 76 percent, compared to nearly 51 percent for Hispanic households, and 46 percent for Black households. These are disturbing statistics, and unless they are addressed systemically, they are unlikely to get better given the growing demographics of these populations within the United States. As an industry that exists to help low- and middle-income households qualify for low down payment mortgages, private mortgage insurers understand the need to balance responsible lending with access to affordable mortgage finance credit. We as an industry need to be working collaboratively with the government and other industry participants to identify and initiate tangible and measurable steps to sustainably expand homeownership for minority families. Fortunately, there is an eagerness across the housing policy sector to achieve these outcomes and the “North Star” here is directly aligned with our corporate purpose at Radian.

(3) Given Representative Marcia Fudge is likely to be confirmed by the U.S. Senate as the new Department of Housing and Urban Development (HUD) Secretary in the coming weeks. What do you think her top priorities should be?

First, we would like to pass along our congratulations to Rep. Fudge on her nomination. Once confirmed, she will take on an incredibly important job at a critical moment in time. She has laid out an ambitious and impactful set of priorities, from deploying a wide range of tools aimed at improving housing affordability, to reducing systemic inequities, to helping renters avoid eviction amid the COVID-19 pandemic. And that’s just for starters. Make no mistake: she will have a lot on her plate. But as she said in her confirmation hearing testimony, “These problems are urgent, but they are not beyond our capacity to solve.” We look forward to supporting her work.

(4) February is Black History Month. What is Radian’s message to Washington lawmakers and regulators about how we can more meaningfully increase Black homeownership and access to affordable mortgage credit?

This is a vital issue as we are still seeing Black homeownership rates lag behind those of the general population and other minority groups. One achievable starting point that we urge policymakers and industry participants to focus on right now is a robust education and assistance campaign that lays out the incredible benefits of homeownership and the steps that you need to take to get on the path to owning a home. There are many amazing trade associations and industry participants that would be happy to provide on-the-ground support to an effort like that, and it’s easy to see how, if we all work together, we could have a real, measurable and positive impact. An education campaign isn’t the only thing we need, of course, but lots of other necessary changes will take some time to enact, and this could be a great way to get things moving in the right direction right out of the gate.

Longer term, there are many items that require attention around this issue, such as how the housing finance industry assesses creditworthiness, preserving and enhancing borrower optionality between GSE and FHA loans, reducing the cost of conventional mortgages where feasible, and importantly, increasing the inventory of affordable housing within the U.S., which is at historically low levels and deserves bipartisan attention through infrastructure improvements and an evaluation of burdensome regulations that drive up the cost of building, and ultimately, homeownership.

Finally, all of these initiatives need to be supported by data to ensure the steps that are being taken are tailored to address the root causes of these problems and that solutions are being appropriately crafted to produce positive and sustainable progress.

(5) Radian is unique as it is constantly changing the status-quo within the mortgage and real estate services industry. How do the innovations at Radian help the homebuyer?

At Radian, we are building on a longstanding culture of innovation and have grown our mortgage credit risk expertise into a full-service mortgage and real estate services powerhouse.

Another example is how we are leveraging our data, analytics and artificial intelligence (AI) to change the future of home valuation. We use our AI photo recognition engine to give us current property condition reports. These condition reports will enhance the quality and accuracy of the final property valuation process. We can also monitor property condition over time using time series data and trending to track property improvement. By implementing this AI-driven technology, we have the opportunity to increase the velocity, accuracy and quality of evaluation process. There are several other use cases we are working on to improve the home purchase experience and offer a seamless experience to a prospective homebuyer.

Derek Brummer’s Biography

As president, mortgage, for Radian Group Inc., Brummer is responsible for overseeing the company’s Mortgage Insurance and Mortgage Risk Services businesses, including developing strategies for continued growth as the mortgage industry evolves.

Derek joined Radian in 2002 and served as Radian’s chief risk officer since 2013 and as head of Mortgage Insurance and Risk Services since 2018. Prior to that, he was chief risk officer and general counsel for Radian‘s financial guaranty company. Prior to joining Radian, Derek was a corporate associate at Allen & Overy; and Cravath, Swaine & Moore, both in New York.

Derek holds a bachelor’s degree from the University of Nebraska at Lincoln and a J.D. from New York University School of Law.

Blog: Celebrating Black History Month – Q&A with Phyllis Caldwell, former Treasury official

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As we celebrate Black History Month, USMI reached out to prominent leaders in the housing finance and mortgage industries to discuss their work and perspectives on the goal of increasing Black homeownership in America. While homeownership has risen over the past few years, so has the growing recognition of the significant racial and economic disparities in mortgage lending and access to affordable mortgage credit, especially in the wake of the COVID-19 pandemic. Of the 2.6 million homeowners that are currently past due on their mortgages, as reported by the Mortgage Bankers Association, over half of them are people of color, according to Census Bureau Household Pulse Survey data for the period of January 16-18, 2021. This situation presents an opportunity for policymakers to correct inequities and better support minority homebuyers.

For more than 60 years, the private mortgage insurance (MI) industry has enabled more than 33 million low- and moderate-income Americans to attain affordable and sustainable homeownership in the conventional market. In the past year alone, nearly 60 percent of borrowers who purchased their home using private MI were first-time homebuyers, and more than 40 percent had incomes of $75,000 or less. It is a goal of the MI industry to work with regulators and lawmakers to increase minority lending within the conventional mortgage market, and Black History Month is a perfect time to advance this conversation.

(1) How does Black History Month intersect with the issue of homeownership?

I think it is important to remind ourselves that while we focus on Black history during the month of February, Black history is America’s history and homeownership is very much a part of the American story. The intersection of Black History Month and homeownership is most meaningful  when we do the following: (i) reflect on the current state of Black homeownership with its existing disparities across race and neighborhood; (ii) deepen our collective understanding of how past government policies fostered neighborhood racial segregation; and (iii) strengthen our resolve to create an equitable path forward.

Black History Month is also a time to remember the positives of Black homeownership and historically Black neighborhoods. While the legacy of racial segregation has certainly contributed to some of the inequities we still see today, there is also a rich history of neighborhoods—including the U Street Corridor in my hometown of Washington, DC—which were the center of African American homeownership, business and culture. Other examples that come to mind are Oak Cliff in Dallas where I lived briefly in the 1980s, and of course Harlem in New York. As these neighborhoods change with revitalization and gentrification, this history of thriving Black neighborhoods and homeowners should not be lost or relegated just to February.

(2) What are the top two or three 2021 priorities that lawmakers and the new Administration should focus on related to housing finance?

Increasing the supply of affordable housing in high opportunity neighborhoods has to be a key part of any housing finance program. Absent an increase in supply, many well-intentioned programs, such as down payment assistance or widening credit box, will increase demand and put further upward pressure on price. Increasing supply will require a strong partnership between the Biden Administration and city/state governments as housing forces are local. There are some metropolitan areas, such as Nashville, where Black homeownership rates are actually rising, and it is important to understand and learn what those cities are doing right.

A second housing priority for the new Administration should be to strengthen and support the existing government mortgage finance programs, such as the ones offered by the Federal Housing Administration (FHA) and the Department of Veteran Affairs, which play a major role in Black homeownership, and to commit to comprehensive housing finance reform including the reform of the government sponsored enterprises (GSEs). Today FHA is about 12 percent of the mortgage market, but it represents over 30 percent of minority home purchase activity. Housing finance reform should address those issues that keep the system strong without unnecessarily raising the overall cost of mortgages—further exacerbating the cost of homeownership.

While not a homeownership finance policy, I hope the new Administration will also break down the silos between homeownership and rental housing policies—both to consider ways to help more renters become homeowners and to expand tools, such as the Low Income Housing Credit, that support the supply of affordable rental construction and preservation. Strong and vibrant communities have a mix of housing stock and policies should look at ways to replicate this in other communities.

(3) Can greater homeownership racial equity be achieved in the next 5 to 10 years in America, and what must happen to increase the rate of Black homeownership?

I am an optimist at heart and believe we as a society can make greater progress toward racial equity over the next 5 to 10 years. I am also a housing policy geek and have bookmarked or saved every “five point plan” or “first 100 day plan” submitted from the many groups in the housing industry. Rather than choose from many good policy ideas, I am sharing the themes that resonate.

First, the economic response to the COVID-19 pandemic must address inequities particularly in education and employment that contribute to homeowner readiness. Second, we have to rebuild trust in the homeownership ecosystem—realtors, mortgage lenders, appraisers, among others to ensure Black prospective homeowners believe they are being treated fairly and respectfully. This can happen through increased attention to racial and ethnic diversity in our industry but also calling out biases when we see them such as the recent negative press on differing home values based on the race of the owner or flaws in a credit scoring model. Finally, we need a bias toward action. It is easy to get consumed by the politics of housing and homeownership and the search for the best outcome. We are at a moment or reckoning and the most important thing is to look at what is working and take action now.

Phyllis R. Caldwell’s Biography

Phyllis Caldwell is an independent financial service professional and founder and sole member of Wroxton Civic Ventures, LLC., which offers advisory services and impact investments to small and emerging social enterprises. She currently also chairs the Board of Directors of Ocwen Financial Corporation (NYSE: OCN) and is on the boards of Enterprise Community Partners and City First Bank of DC. 

Phyllis has over 25 years of experience in housing and community development finance in the corporate, government and nonprofit sectors. She served at the U.S. Department of Treasury under President Barack Obama where her team was responsible for implementing the Home Affordable Modification Program (HAMP), and other foreclosure prevention initiatives established through the Troubled Asset Relief Program (TARP) during the recovery from the 2008 Great Recession. Previously, Phyllis was president and CEO of Washington Area Women’s Foundation. She retired from Bank of America in 2007 where she held various executive roles including President of Community Development Banking and leading a national team in tax credit investing, community development lending, investments in Community Development Financial Institutions and small business venture funds.

Over the course of her career, Phyllis has served on several nonprofit boards including Low Income Investment Fund (LIIF), Community Preservation and Development Corporation (CPDC), and Center for International Forestry Research in Bogor, Indonesia. In addition, she was a member of the Community Development Advisory Committee for the Federal Reserve Bank of Richmond.

Phyllis received her MBA from the Robert H. Smith School of Business at the University of Maryland, College Park and is an Executive-in-Residence at the Smith School. She holds a bachelor’s in sociology and urban planning, also from the University of Maryland, College Park. 

Newsletter: February 2021

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2021 is off to a quick start as the Biden administration has made housing policy a key focus during its first month in office. U.S. Mortgage Insurers (USMI) is ready to work with the new administration and Congress to advance sound housing policies that create a more equitable and sustainable housing finance system. Below are some of the key developments from the beginning of the year:

USMI Publishes Op-Ed in The Hill on Housing Affordability
USMI Co-Signs Letter with Diverse Collation to Biden Administration on Housing Recovery
President Biden Signs Executive Order on Housing Equity
USMI Sends Letter to HUD Secretary-Designee Marcia Fudge
USMI Publishes Blog on the New Congress
What We Are Reading

  • USMI Publishes Op-Ed in The Hill on Housing Affordability. On January 31, The Hill published an op-ed by USMI President Lindsey Johnson titled, “We must increase access to affordable mortgages for minority borrowers.” Johnson outlines ways the housing finance system can use data-driven, targeted approaches to reduce barriers to affordable mortgages for Black and Hispanic households. She notes that while COVID-19 has compounded existing racial and economic gaps, there are several long-term issues that unnecessarily increase costs or create barriers for minority borrowers seeking to become homeowners. Impending changes like the recently finalized capital requirements for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, could further stress mortgage affordability; while current policies like the GSEs’ arbitrary loan-level price adjustments (LLPAs) further drive up costs and push homeownership out of reach.

    Johnson called on policymakers to recognize the critical role of low down payment mortgage options in facilitating homeownership, noting that more than 80 percent of first-time homebuyers used these options in the past several years. She also called for more targeted assistance programs for borrowers who may lack intergenerational wealth or equity from a previous home to contribute to a down payment, and highlighted Rep. Al Lawson’s (D-FL) First-Time Homeowners Assistance Act and President Biden’s interest in a first-time homebuyer tax credit. Johnson also recommends that the Biden administration assemble a housing affordability task force that “includes broad representation from industry, consumer advocate community, and government to formulate an action plan, build consensus, and get to work.”
  • USMI Co-Signs Letter with Diverse Collation to Biden Administration on Housing Recovery. On January 21, USMI joined the Black Homeownership Collaborative, along with more than 30 industry stakeholders, on a letter to the Biden administration requesting that the American Rescue Plan include assistance to homeowners impacted by COVID-19. The group noted the growing risk to homeownership caused by the pandemic, which has profound implications for people of color, adding that “our country cannot afford to see more damage done to minority homeowners.”

    Specifically, the signatories urged President Biden to include in his relief proposal to Congress a $25 billion Housing Assistance Fund, modeled on the 2010 Hardest Hit Fund, to facilitate direct assistance to homeowners. The direct assistance would provide funds to state housing finance agencies to help households experiencing COVID-19 related hardship bring their mortgage loans current. The letter also called on the Biden administration to extend the foreclosure moratorium and continue to process forbearance applications on federally-backed mortgages.

    The National Housing Conference (NHC), National Fair Housing Alliance (NFHA), Mortgage Bankers Association (MBA), Local Initiatives Support Corporation (LISC), and the Leadership Conference on Civil and Human Rights, were among the letter’s signatories.
  • President Biden Signs Executive Order on Housing Equity. On January 26, President Biden issued an executive order titled, “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies.” The order highlighted that throughout the 20th century, the U.S. government “systematically implemented racially discriminatory housing policies,” the effects of which can be seen today in the racial homeownership gap and the systemic barriers to safe, accessible, and affordable housing for traditional marginalized groups, including people of color. The order further called on the federal government to play a critical role “in overcoming and redressing this history of discrimination and in protecting against other forms of discrimination by applying and enforcing Federal civil rights and fair housing laws.” Before signing the executive order, President Biden stressed that his administration will strive to implement policies that embrace equity, and not merely equality, in order to address systemic issues and provide for equal access to the American Dream of homeownership. To this end, President Biden called on the Secretary of Housing and Urban Development (HUD) to review several rules enacted in 2020 and ensure that all rules comply with HUD’s statutory duty to further fair housing and prevent practices with an unjustified discriminatory effect.
  • USMI Sends Letter to HUD Secretary-Designee Marcia Fudge. Last week, USMI sent HUD Secretary-designate Fudge a letter, outlining several policies HUD should consider to ensure it is effectively promoting sustainable and affordable diverse homeownership. USMI cautioned against simply lowering credit costs, such as reducing the Federal Housing Administration (FHA) mortgage insurance premiums, as doing so will likely only increase demand during a time when supply constraints in the market have caused home prices to increase by nearly 12 percent just in the past year. Further, it will push affordability out of reach for many homeowners, especially borrowers on the lower end of the market. As FHA continues to support borrowers through the COVID-19 crisis, it will be important to not take actions that could potentially undermine FHA’s ability to help existing and future borrowers. The letter also called on policymakers to explore targeted policies to support borrowers most in need, such as targeted down payment assistance (DPA) programs for borrowers who may not even have the resources for a 3 or 3.5 percent down payment, and considering establishing reserve accounts to promote sustainable homeownership. USMI noted, “it is more important than ever that the government-backed FHA program and the conventional market backed by private MI operate in a consistent and coordinated manner,” as the two play an important and distinct role in the market and should not compete for market share.

    Meanwhile, the Senate Banking Committee voted 17 to 7 yesterday to approve Honorable Marcia Fudge as HUD Secretary. She now awaits a confirmation vote by the full U.S. Senate.
  • USMI Publishes Blog on New Congress. USMI posted a blog providing an overview of the 117th Congress with insights on new members to the House Financial Services Committee and Senate Banking Committee, as well as priorities for COVID-19 relief and housing policy.
  • What We Are Reading. The Urban Institute published a new report titled, “The Future of Headship and Homeownership,” which examined trends in homeownership in the United States through 2040 based on current housing policies. The report found that the United States will likely see modest declines in homeownership, mostly for Black households, and that decreasing the racial homeownership gap would require expanded financial education, re-examining the mortgage qualification process, and implementing programs that sustain homeownership for borrowers with less wealth, especially people of color.

Op-Ed: 2021: Democrats Driving the Agenda

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By Brendan Kihn, Government Relations Director of U.S. Mortgage Insurers (USMI)

With the New Year came both a new Administration and a new Senate majority. Having held the House, winning back the White House, and securing the January elections in Georgia to flip the Senate, the Democrats have a trifecta in D.C. for the first time since January 2011. For Democrats, the electoral wins present an opportunity to push forward a much more complete policy agenda. However, given the narrow majorities in both chambers of Congress, Democrats will still have limits on what is attainable, as they will need every Democratic vote, and possibly a few Republican votes to pass key legislation.

Full Steam Ahead on COVID Relief and Financial Equity

Rep. Maxine Waters (D-CA) became the chair of the House Financial Services Committee (HFSC) in January 2019, making history as the first woman and African American to hold the position. Chairwoman Waters used her gavel to conduct extensive oversight of the various agencies under her jurisdiction, including the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), U.S. Department of Housing and Urban Development (HUD), and the National Credit Union Administration (NCUA). Chairwoman Waters embarked on an ambitious agenda, which quickly became consumed by the need to respond to the COVID-19 pandemic in early 2020.

Fast forward to 2021, Chairwoman Waters has made it clear that she intends for HFSC to continue its important focus on COVID-19 related financial services issues and COVID-19 relief, as well as advancing policies that promote economic fairness, advance financial inclusion, and hold oversight of financial institutions and their regulators. Congressional Democrats and President Biden are in alignment with policies that advance equity – not merely “equality” – as evidenced by the Administration’s January 26 memo to HUD that recognized the ongoing legacies of systemic racism, and stated that the “Federal Government shall work with communities to end housing discrimination, to provide redress to those who have experienced housing discrimination, to eliminate racial bias and other forms of discrimination in all stages of home-buying and renting, to lift barriers that restrict housing and neighborhood choice, to promote diverse and inclusive communities, to ensure sufficient physically accessible housing, and to secure equal access to housing opportunity for all.”

What does this mean for housing? As the primary way that American families attain financial stability and build long term generation wealth, homeownership will be a critical component of the Democratic push toward addressing the persisting racial wealth gap. Specifically, look for HFSC to act on policies that:

  • Increase access to affordable mortgage credit via first-time homebuyer tax credits (in conjunction with the House Committee on Ways and Means), targeted down payment assistance (DPA) programs, and 529-like down payment savings accounts.
  • Increase homeownership rates among minority communities and close the racial homeownership gap.
  • Ensure fair lending through robust oversight of lenders and support of reinstating the Obama-era Affirmatively Furthering Fair Housing rule.
  • Include the construction of affordable housing as part of an infrastructure package and as outlined in Chairwoman Waters’ bill, “Housing is Infrastructure Act of 2020.”

While the agenda will remain focused on these issues facing millions of Americans, the committee will also leverage its oversight responsibility of major financial institutions, markets and regulators. Already, the committee has turned to address the GameStop-Robinhood-Reddit events that rattled the markets last month and triggered bipartisan disapproval of both companies’ practices and regulators’ responses. 

New Chairman for Senate Banking Committee

In the 116th Congress, the HFSC reported out 62 bills with the majority going to the Senate “graveyard” where they saw neither consideration by the Senate Banking Committee (SBC) nor a floor vote. With the Democrats now in control of both chambers, however, Chairwoman Waters finds herself with a willing partner in Sen. Sherrod Brown (D-OH), the new chairman of the Committee on Banking, Housing and Urban Affairs. Sen. Brown’s policies are driven by his commitment to the “dignity of work,” and he has voiced support for housing finance reforms that increase mortgage affordability. He has long called for a “housing system built on a mission to serve borrowers and renters, no matter who they are, what kind of work they do, or where they live.” Considering Fannie Mae and Freddie Mac – the government sponsored enterprises (GSEs) – have been in conservatorship for over 12 years, Sen. Brown is keenly aware that housing finance reform is the last unfinished piece of reform from the 2008 financial and housing crisis. Potential action on GSE reform will undoubtedly be guided by principles that enjoy broad support among policymakers and stakeholders, including:

  • Providing regulation of the GSEs similar to public utilities with regulated rates of return.
  • Protecting access to affordable 30-year fixed-rate mortgages.
  • Requirements to serve a broad, national market.
  • Equitable access to the secondary mortgage market for lenders of all types and sizes.
  • Maintaining affordable housing goals and metrics.
  • Providing a form of paid-for government guarantee.

New Faces in the Capitol

Every two years D.C. bids farewell to some members of Congress while saying hello to freshmen members in the House and Senate. Whether due to retirements, unsuccessful reelections, or moving committees, the HFSC will lose nearly 10 members, including Rep. Katie Porter (D-CA) and former Rep. Lacy Clay (D-MO). However, the committee is getting three Democratic freshmen: Rep. Ritchie Torres of New York; Rep. Jake Auchincloss of Massachusetts; and Rep. Nikema Williams of Georgia. 

  • Following his victory last November, Rep. Torres had been hoping for a spot on HFSC, saying in an interview that “[t]he committees that most interest me are Financial Services because it has jurisdiction over housing and housing is my greatest passion, and Oversight, because I have experience with Oversight and Investigations.”
  • Prior to representing Massachusetts’ 4th Congressional District, Rep. Auchincloss served on the Newton City Council and has focused on housing, transportation and healthcare – the three areas he thinks are key to economic mobility.
  • Rep. Nikema Williams previously served as a Georgia State Senator and the Chair of the Georgia Democratic Party, and he is committed to “[t]ackling the COVID crisis, including housing assistance and making sure the financial system works [for the people].”

In the upper chamber, Majority Leader Chuck Schumer (D-NY) announced on February 2 that Georgia Senators Jon Ossoff and Raphael Warnock would join the SBC for the 117th Congress. The financial services industry is an important component of Georgia’s economy and in recent years Atlanta has emerged as a financial technology (fintech) hub. On several occasions, Sen. Ossoff has stated the need to solve “deep inequities in our financial system,” and his desire to boost resources for affordable housing as part of an infrastructure bill. The two freshmen Democrats campaigned as a team for the January 2021 runoff election and focused on COVID-19 relief, including for renters and homeowners. 

On the Republican side, Sen. Steve Daines (R-MT) will be joining the SBC, as well as freshmen Senators Cynthia Lummis (R-WY) and Bill Hagerty (R-TN). Sen. Daines will be an important voice on policies concerning home building and housing supply constraints that are driving up the costs for homebuyers. He has long recognized that affordable housing is critical for a thriving economy in Montana and throughout the country, and has received the Defender of Housing Award from the Montana Building Industry Association. Both freshmen senators are fiscal conservatives and proponents of low taxes and a thriving private sector. 

“Reconciliation” – The Word on Everyone’s Lips

On January 5, Georgia voters took to the polls in a runoff election that flipped both Senate seats to the Democrats and created a 50-50 split in the upper chamber. Upon being sworn in as Vice President on January 20, Kamala Harris gave Democrats majority control in the Senate as the tiebreak vote.  Committee gavels switched to the Democrats on February 3, which will quicken the confirmation process for several of President Biden’s cabinet nominees and put Democrats in control of hearing topics and scheduling.

While Senate Democrats have a 51 majority with the Vice President, the legislative filibuster will remain in place (for now) due to a block of moderate Democrats – most notably Senators Joe Manchin (D-WV), Kyrsten Sinema (D-AZ), and Jon Tester (D-MT) – who do not support eliminating the 60-vote rule. As such, the primary vehicle in the Senate will be reconciliation, which allows for the passage of bills with 51 votes, but with restrictions concerning what can and cannot be included. The use of reconciliation to pass additional COVID-19 relief, enact changes to the tax code, and fund infrastructure projects will require every single Democrat vote, a reality that gives the moderate bloc immense negotiating power.

In 2021, we find ourselves with a new power structure in D.C. – a Democratic trifecta that will often be torn between big bold policies and seeking bipartisan compromises with the Republican minority. 

Op-Ed: We must increase access to affordable mortgages for minority borrowers

Posted on by dcadmin
By: Lindsey Johnson


Homeownership has been on the rise over the past few years even during the COVID-19 pandemic, but a deeper look at who is able to become a homeowner reveals significant racial and economic gaps. With a growing recognition in Washington of this disparity and a renewed focus on increasing financial security for Black and Hispanic families, policymakers and industry have the opportunity to correct inequities and sustainably increase minority homeownership.

U.S. Census data for the third quarter of 2020 show that homeownership among White households stands at nearly 76 percent, compared to nearly 51 percent for Hispanic households, and 46 percent for Black households. Meanwhile, of the minority borrowers who qualified for home financing, many encountered added costs that make homeownership disproportionately more expensive or altogether out of reach.

COVID-19 has further compounded the racial and economic gap as millions of low- to moderate-income families have lost their jobs and face financial insecurity. The Urban Institute finds that Black and Hispanic homeowners are significantly more likely to face financial hardships and are more at risk of not being able to pay their rent or mortgage payment due to the impacts of the pandemic.

So, while we must focus on the pandemic and its impact on borrowers, and particularly minority borrowers, we must also not lose sight of addressing the longer-term systemic issues that unnecessarily increase costs or create barriers for minority borrowers. Importantly, expanding homeownership opportunities for minority borrowers does not have to be at the expense of the reforms made over the last decade that have drastically improved lending to protect consumers and avoid another housing market collapse. The housing finance system can remain stable and manage mortgage credit risk prudently, while also using data-driven, targeted approaches to reduce barriers to affordable mortgages for Black and Hispanic households.

Mortgage affordability could be further stressed once new regulatory mandates are implemented. This includes new capital requirements for Fannie Mae and Freddie Mac (the GSEs) recently finalized by the Federal Housing Finance Agency (FHFA). While it is essential that the GSEs hold appropriate capital, the rule must be balanced and policymakers should consider changes to elements of the final rule that threaten to raise the cost of mortgages for all borrowers and push homeownership farther out of reach for many families of color.

Additionally, policies that adversely drive up costs for minority borrowers should be re-examined and reduced or eliminated. Loan-level price adjustments (LLPAs) that were introduced by the GSEs in 2008 are especially burdensome for minority and first-time homebuyers. These fees are disproportionately paid by borrowers with lower down payments and credit scores, whose mortgages are already protected by private mortgage insurance. Essentially, borrowers are being double charged for the same risk protection. Industry and consumer advocates — including the National Fair Housing Alliance and the Center for Responsible Lending — have long urged the GSEs to reduce or eliminate these redundant fees.

Further, it is critical that policymakers recognize the role of low down payment mortgage options in facilitating homeownership. In fact, more than 80 percent of first-time homebuyers used low down payment mortgage options in the past several years — with options as low as 3 percent down. While these options have prudently enabled millions of people of all backgrounds to become homeowners, even more targeted down payment assistance programs should be considered for borrowers who may not have intergenerational wealth or equity from a previous home to contribute to a down payment. Legislation like Rep. Al Lawson’s (D-Fla.) First-Time Homeowners Assistance Act should be given close consideration when re-introduced in 2021. Meanwhile, President Biden has already expressed interest in a first-time homebuyer tax credit — a very welcome early signal from the new administration.

There are other issues that warrant attention, such as the low supply of affordable housing and lack of access to financial education. This list goes on, and we recommend that the Biden administration assemble a task force that includes broad representation from industry, consumer advocate community, and government to formulate an action plan, build consensus, and get to work.

As an industry that exists to help low- and middle-income households qualify for low down payment mortgages, private mortgage insurers understand the need to balance responsible lending with access to affordable mortgage finance credit. There are tangible and measurable steps to sustainably expand homeownership for minority families and fortunately there is an eagerness across the housing policy sector to achieve these outcomes.

This piece was first published in The Hill on January 30, 2021.

Letter: To Honorable Marcia Fudge, HUD Secretary Designate

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The Honorable Marcia Fudge
Secretary Designate
U.S. Department of Housing and Urban Development
451 7th Street SW
Washington, DC 20410

Dear Honorable Fudge,

U.S. Mortgage Insurers (“USMI”) and its member companies congratulate you on your nomination to serve as the Secretary of the U.S. Department of Housing and Urban Development (HUD). Your many years of public service, including as mayor of Warrensville Heights, Ohio and the U.S. Representative for Ohio’s 11th Congressional District, demonstrates your commitment to community, and will serve you well as Secretary of HUD, as you have no doubt seen in your own district the homeownership challenges facing hardworking American families.

For more than 60 years, the private mortgage insurance (MI) industry has enabled more than 33 million low- and-moderate income Americans to attain affordable and sustainable homeownership in the conventional market. Working with the government-sponsored enterprises (GSEs) —Fannie Mae and Freddie Mac— and lenders of all sizes and business models, private MIs help borrowers qualify for mortgage finance credit with down payments as low as three percent. In the past year alone, more than 1.5 million people were able to purchase or refinance their mortgage due to private MI. Nearly 60 percent of borrowers who purchased their home using private MI were first-time homebuyers and more than 40 percent had incomes of $75,000 or less. Importantly, because USMI members provide private capital in front of the GSEs and taxpayers, the industry also provides significant loss protection to the mortgage finance system, having covered well over $50 billion in claims through the 2008 financial crisis—losses that would have otherwise been borne by taxpayers.

Through the last year despite the unprecedented challenges presented by COVID-19 pandemic, mortgage credit has been largely affordable due to historically low interest rates and 2020 had the largest mortgage origination volume since 2006—both for the conventional and Federal Housing Administration (FHA) markets. Despite this record mortgage volume and historically low interest rates, there remain significant housing affordability challenges for many borrowers across the country, including that nationwide home price appreciation (HPA) has skyrocketed to 7.3 percent year-over-year, the highest increase since 2014. Moreover, for the past seven years, the segment of the market that has experienced the largest and fastest HPA has been the lower end of the market, which over the last year saw an increase of nearly 11 percent. A driving force behind the high HPA is the fact that consumer demand continues to outpace new home construction, thereby exacerbating housing affordability by driving up home prices and putting homeownership further out of reach for many prospective homebuyers, most notably for minority and first time borrowers.

Policy recommendations such as lowering FHA premiums too quickly and aggressively may significantly impact FHA’s ability to address the challenges that will arise as COVID forbearances end, and coupled with the high delinquencies for FHA loans, could ultimately lead to higher claims, potentially undermining FHA’s ability to help future borrowers. Further, reducing premiums would only add fuel to the fire in terms of artificially lowering what is already relatively affordable mortgage finance credit. Such actions would inject more “demand” into the market without addressing the “supply” side—which will only drive-up home prices further, hurting affordability at the lower end of the market most. Additionally, other policy recommendations such as ending FHA’s “life-of-loan” policy, which would require FHA to continue to insure loans (because FHA insurance does not in fact cancel) without coverage being paid for, could similarly weaken FHA and its ability to meet the housing needs of future borrowers, while also exposing taxpayers to undue risk. FHA’s insurance stays on the loan for the “life of the loan,” therefore those who suggest ending the “life of loan” premiums are essentially advocating for providing free government-backed insurance.

There are other areas that may represent barriers to homeownership that policymakers should also choose to explore, including the targeted use of down payment assistance (DPA) programs for the borrowers who are unable to attain even a 3 percent or 3.5 percent down payment, who truly need the support. It is important that DPA programs are structured and operated in a sustainable manner so as to not create excessive leverage and risk within the mortgage finance system, or pose undue risk to taxpayers and the economy, which will ultimately hurt vulnerable homeowners most. As federal policy makers look to increase homeownership, it is essential that it is done in a manner that promotes sustainable homeownership for borrowers, as it does more harm to a family to get into a home that they can then not afford. There are meaningful ways to enhance borrower sustainability, such as by using part of a DPA to establish a reserve account for certain borrowers. Reserve accounts have been proven to be predictive of a borrower’s ability-to-repay their loan, and by focusing on reserve accounts, HUD not only prioritizes getting people into homes, but also helping them be successful homeowners. There are other important considerations to promote sustainable homeownership, such as housing counseling, for borrowers where HUD or FHA aim to expand access to mortgage finance credit.

Finally, USMI’s members intimately understand the importance of ensuring access to affordable, prudent low down payment mortgages in the marketplace. Understanding that more than 80 percent of first-time homebuyers over the last several years have depended on access to low down payment lending, it is more important than ever that the government-backed FHA program and the conventional market backed by private MI operate in a consistent and coordinated manner. Each plays an important, and distinct, role in the housing finance system and they should not be competing for market share—a situation which ultimately does a disservice to the borrowers we serve and to taxpayers.

FHA has long been a vital resource for many borrowers who may not have the ability to attain mortgage finance credit through the conventional market. Our industry looks forward to working with you and welcomes the opportunity to further engage with HUD and FHA to identify and address risks in the system and barriers to homeownership for borrowers, as well as find ways to further enhance a coordinated and consistent housing market that provides for the greatest access to sustainable mortgage finance credit.

We wish you the best in your transition to HUD Secretary and look forward to working with you once you are confirmed.

Sincerely,

Lindsey D. Johnson
President

For a full PDF of this letter, click here.

 

Letter: USMI Joins Black Homeownership Collaborative Calling the Biden Administration to Include a Housing Assistance Fund in the American Rescue Plan

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The Honorable Joseph R. Biden, Jr.
President of the United States
The White House
Washington, DC 20500

Dear President Biden,

Congratulations on your inauguration. We appreciate your leadership addressing the health and economic impact of COVID-19, and your announcement of comprehensive emergency assistance for the millions of Americans impacted by this crisis. Our organizations have formed a collaborative, or are stakeholders in the work of the collaborative, to achieve 3 million net new Black homeowners by 2030, which would increase the Black homeownership rate to more than 50 percent, a significant step towards closing the homeownership gap for people of color. Essential to this effort is reducing the number of Black households at risk of losing their homes as a result of the economic impact of the pandemic. We are writing to urge that the legislative proposal your administration sends to Congress include $25 billion in direct assistance for the millions of homeowners who are at risk of losing their homes due to the economic impact of COVID-19.

The American Rescue Plan proposal seeks to prevent “untold economic hardship for homeowners” by extending the foreclosure moratorium and continuing applications for forbearances on federally-backed mortgages. Mortgage forbearance is an important tool in avoiding foreclosure, particularly for the millions of homeowners who have lost their jobs through no fault of their own. We commend your support for additional assistance to renters and apartment owners. Low- and moderate-income renters do not have resources to pay past rent when they go back to work, making emergency rental assistance an immediate priority. But homeowners in the same position also need help now.

For residential homeowners, mortgage forbearance is an essential home retention tool for short- term financial hardships. Prolonged forbearance without assistance to reduce or pay off missed payments may not be enough to stave off foreclosure, particularly for households facing long- term reductions in income or with limited home equity. It is appropriate and essential for the federal government to extend the same missed-payment relief to these homeowners as renters, using the same income guidelines that exist in the current rental assistance program being administered by the Treasury Department.

We are requesting that you include a $25 billion Housing Assistance Fund, modeled on the Hardest Hit Fund, to provide funds to state housing finance agencies to help homeowners with COVID-19 hardships bring their mortgage loans current through targeted assistance. The funds would be used for mortgage payment assistance, utility payments, property tax assessments, and other support to prevent eviction, mortgage delinquency, default, foreclosure, or loss of utility services.

Importantly, this growing risk to homeownership has profound implications for people of color, who are especially at risk. In fact, the Black homeownership rate, which plummeted during the Great Recession, has never fully recovered. Black homeownership today is as low as it was in 1968 when the Fair Housing Act was passed. Our country cannot afford to see more damage done to minority homeowners.

According to the Mortgage Bankers Association, there are currently 3.8 million homeowners who are past due on their mortgage. Census Bureau Household Pulse Survey data for the period December 9-21 indicates that over half of these homeowners are people of color. One in five Hispanics and nearly a quarter of all Black mortgage holders reported being late on their mortgage. Our organizations are committed to increasing homeownership rates for all people of color and closing the homeownership gap, but we cannot do so when we continue to lose more homeowners to COVID-19-related financial hardships.

We respectfully request that the legislative proposal for the American Rescue Plan include $25 billion in funding for a Housing Assistance Fund.

Sincerely,

Black Homeownership Collaborative Steering Committee Members

National Housing Conference
Mortgage Bankers Association
National Association of Real Estate Brokers
National Association of REALTORS® National Fair Housing Alliance
National Urban League

Other Key Stakeholders

Center for Community Progress
Cinnaire
Commerce Home Mortgage
Community Home Lenders Association
Consumer Federation of America
Framework Homeownership
Guild Mortgage Comp
International Home Builders
Institute Home
FreeUSA
Homeownership Alliance
HOPE (Hope Credit Union/Hope Enterprise Corporation/Hope Policy Institute)
Housing Assistance Council
Housing Partnership Network
Housing Policy Council
Local Initiatives Support Corporation (LISC)
Low Income Investment Fund
Manufactured Housing Institute
National Association of Affordable Housing Lenders
National Community Reinvestment Coalition
National Community Renaissance
National Community Stabilization Trust
National Council of State Housing Agencies
National Housing Resource Center
National NeighborWorks Association
New American Funding
New York Housing Conference
Prosperity Now
The Leadership Conference on Civil and Human Rights
Up for Growth Action
U.S. Mortgage Insurers
Zillow

Cc: The Honorable Janet Yellen, Treasury Secretary-designate
The Honorable Marcia Fudge, Housing and Urban Development Secretary-designate
The Honorable Tom Vilsack, Agriculture Department Secretary-designate
The Honorable Susan Rice, Director, Domestic Policy Council
Mr. Brian Deese, Director, National Economic Council

For a full PDF of this letter, click here.

Press Release: Private Mortgage Insurers Support Federal Housing Finance Agency Proposed Rule for GSE New Products and Activities

Posted on by dcadmin

USMI Applauds the Proposed Enhanced Transparency, Oversight, and Review and Encourages Rule Application to All Current Pilot Programs

WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, submitted its comment letter to the Federal Housing Finance Agency (FHFA) on its Notice of Proposed Rulemaking for New Enterprise Products and Activities, which seeks to replace the 2009 Interim Final Rule that established a process for the government sponsored enterprises (“GSEs” or “Enterprises”) to obtain prior approval for new products and provide notice for new activities.

“USMI is encouraged to see FHFA following its statutory responsibility to establish a much more transparent and appropriate process for considering and approving new GSE products and activities,” said Lindsey Johnson, President of USMI. “The Interim Rule was adopted after the 2008 financial crisis, and as the GSEs continued to play an important and even greater role in the housing market during conservatorship, they at times expanded into new activities that are outside of the secondary market, compete in areas already well-served by the primary market, and not consistent with their mission.”

In its comment letter, USMI welcomes the increased transparency outlined in the proposed rule and supports the inclusion of “pilots” in the criteria for identifying and assessing new activities and products at the GSEs. Considering that numerous prior pilots were developed without meaningful input and analysis from industry stakeholders, USMI believes it is important that the FHFA close the loopholes that could be used again to circumvent the objectives of the proposed framework. USMI urges the FHFA to direct the GSEs to halt all current pilots and, following the implementation of a final rule, require them to submit Notices of New Activity should they want to continue offering such products or programs.

USMI also highlights in its letter the importance of the approval framework ensuring that innovations at the GSEs do not disintermediate private capital and that new activities and products operate in a manner that is within the scope of the secondary market functions set forth in their congressional charters. USMI recommends that the proposed rule be revised to provide additional clarity for the FHFA’s assessment criteria for new activities and products at the GSEs, specifically:

  • The degree to which private market participants are meeting or could meet the needs of the market and consumers, and whether the new activity or product would disintermediate non-GSE market participants;
  • Whether the new activity or product would rely on limited or broad participation by market participants;
  • How certain market participants will be selected over others, whether the activity or product will be made available to other market participants on similar terms, and whether other participants would be harmed by engagement in the activity or product; and
  • Whether the new activity or product would present a conflict of interest for the GSEs, especially where anti-competitive concerns may be present.

“This rule is sound public policy, as it will enhance transparency and provide for the appropriate review of new GSE products and activities to best serve the housing finance system and ensure that government and taxpayers avoid unnecessary new risk,” continued Johnson. “It is imperative that the FHFA continue to establish and enhance its oversight of the GSEs, and this rule is a critical step to that end.”

USMI’s full comments on the FHFA’s proposed rule can be found here.

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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.