While this summer has posed new and unexpected challenges, policymakers and U.S. Mortgage Insurers (USMI) and our members continue to work hard to make sure the U.S. housing system remains strong as we face unprecedented economic and health challenges resulting from COVID-19. Below are topics we have been following:

USMI Member Company COVID-19 Response
CFPB Kraninger’s Semi-Annual Hearings
USMI Submits Comment Letter to CFPB on GSE Patch Extension
SCOTUS to Hear Arguments on FHFA’s structure
Dana Wade Confirmed as FHA Commissioner 
USMI President in Mortgage Professional America 

• USMI Member Company COVID-19 Response. USMI updated its COVID-19 resource webpage with its members’ response fact sheet, highlighting many of the important actions that USMI members have taken to support homeowners, servicers, and lenders across the country during the pandemic. Because of the critical role USMI members play in the housing finance system, the mortgage insurance (MI) industry is committed to supporting the federal government’s robust mortgage relief initiatives, including the nationwide forbearance programs implemented by Fannie Mae and Freddie Mac (GSEs). The fact sheet outlines areas of common ground between USMI members and how they have focused their efforts on helping borrowers remain in their homes by supporting their lender customers during these challenging times. 

• CFPB Kraninger’s Semi-Annual Hearings. On July 29 and 30, Consumer Financial Protection Bureau (CFPB) Director Kathleen Kraninger testified before the Senate Banking Committee and House Financial Services Committee, respectively. Both hearings focused on the Bureau’s response to the COVID-19 pandemic and on its ongoing rulemakings and supervision activities. In her written testimony submitted to the Senate Banking Committee, Director Kraninger provided an update on the CFPB’s proposed changes to the GSE provision (GSE Patch) of the Bureau’s Ability-to-Repay (ATR)/Qualified Mortgage (QM) Rule, which is set to expire in January 2021. The CFPB is still considering removing the QM loan definition’s 43 percent debt-to-income (DTI) ratio and replacing it with a pricing threshold.
  
  During the Senate Banking hearing, Senator Tim Scott (R-SC) asked Director Kraninger why the QM standard and safe harbor thresholds would be different and stated, “I think we should do all that we can for credit worthy borrowers to become homeowners when it makes sense. By harmonizing the QM and the safe harbor, it might make it easier for financial institutions to not go to the default position of the safe harbor that’s 50 (basis) points lower.” In addition, during the House Financial Services Committee hearing, members from both parties expressed interest in the CFPB’s rulemaking on the General QM definition and its effect on prudent underwriting and consumers’ access to credit. Representatives Bill Foster (D-IL) and French Hill (R-AR) emphasized that any new QM standard should retain robust underwriting standards to ensure ATR and promote sustainable homeownership. Further, Representatives Hill and Steve Stivers (R-OH) noted that there should be a single pricing standard for QM and Safe Harbor since, unlike the 2013 ATR/QM Rule, pricing would be used to measure both under the proposed rule.

• USMI Submits Comment Letter to CFPB on GSE Patch Extension. On August 10, USMI submitted a comment letter to the CFPB in response to the Notice of Proposed Rulemaking (NPR) regarding the extension of the sunset date for the Temporary GSE QM definition, or the “GSE Patch,” under the Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z), which is currently set to expire on January 10, 2021. USMI recommended to Director Kraninger that the CFPB should “set the sunset date for the GSE Patch to be at least six months after the effective date of the finalized General QM definition rule.” Doing so would allow all industry stakeholders sufficient time to fully understand and implement the new rule and afford industry participants an appropriate amount of time to develop, test, and implement new models to facilitate a smooth transition to the new general QM framework. Moreover, as the financial services industry grapples with implications of COVID-19 and works to support market participants, consumers, and the economy, USMI believes a six-month overlap period would promote an orderly implementation of the new General QM definition while offering continued assistance to homeowners across the county.
  
  In June 2020, the CFPB issued a NPR on the General QM definition under the Truth in Lending Act (Regulation Z) and the GSE Patch. The Bureau’s NPR proposes to change the current QM standard in favor of a pricing threshold; specifically, the difference between the loan’s Annual Percentage Rate (APR) and the Average Prime Offer Rate (APOR) for a comparable transaction at 200 basis points (bps) above APOR. The Bureau justifies this threshold using early delinquency data as an indicator of determining consumers’ ATR.
  
  In a September 2019 comment letter to the CFPB, USMI emphasized that, should the Bureau move forward to replace the QM definition with one based on a pricing threshold, it can and should increase the spread that is used to delineate Safe Harbor loans. The previous 2013 ATR/QM Rule created two legal presumptions for QM loans: “Safe Harbor” and “Rebuttal Presumption.” These presumptions have, in turn, created a norm by which lenders will not typically lend above the Safe Harbor line and avoid making Rebuttable Presumption loans as to avoid risk to legal responsibility. This standard has disproportionality impacted Black and Hispanic homebuyers, who were twice as likely as White borrowers to have low down payment conventional purchase loans outside of the Safe Harbor. Under the proposed rule, many of the borrowers who are above the 150 bps threshold will be left only with the option of a Federal Housing Administration (FHA) loan, which means they have vastly different competitive choices in terms of product offerings and loan terms. Further, due to the discrepancies for how this threshold is calculated between the conventional and FHA markets, leaving the Safe Harbor threshold at 150 bps will arbitrarily distort the market and shift borrowers to FHA. 
  
  
  Based on this, USMI and other industry members recommend that the Bureau increase the Safe Harbor threshold to 200 bps above APOR to be consistent with the proposed QM APOR threshold that the Bureau recommended in its June 2020 NPR.

• SCOTUS to Hear Arguments on FHFA’s structure.  On July 9, the Supreme Court announced that it would hear Collins v. Mnuchin upon its return in October. The suit questions the constitutionality of the FHFA’s single-director structure. Currently, the FHFA director is appointed to serve a five-year term and can only be removed “for-cause;” he or she cannot be fired at-will by the president. This follows the Court striking down the CFPB’s single-director structure in a 5-4 ruling in Seila Law v. CFPB in June, declaring it unconstitutional and severable from the other provisions of the Dodd-Frank Act. 
  
  In a statement, the FHFA said it did not believe the Court’s ruling applied to the FHFA. “The Seila Law decision does not directly affect the constitutionality of FHFA, including the for-cause removal provision.” It continued, “FHFA looks forward to the U.S. Supreme Court taking up the Collins case and clarifying these important issues.”

• Dana Wade Confirmed as FHA Commissioner. On July 28, the Senate confirmed Dana Wade in a 57-40 bipartisan vote as commissioner of the FHA. USMI issued a statement praising Wade’s confirmation. USMI President Lindsey Johnson said, “Commissioner Wade has shown commitment to keeping FHA’s core mission of providing affordable housing opportunities to moderate and low-income households, who need the agency’s 100 percent taxpayer-backed loans the most. We are confident that Commissioner Wade will continue to carry out this mission as she understands the important role the agency plays in our housing financial system.” Mortgage Professional America included USMI’s statement in its coverage of Wade’s confirmation.

• USMI President in Mortgage Professional America. Mortgage Professional America published USMI President Lindsey Johnson’s op-ed titled, “Low Down Payments Backed by Mortgage Insurance More Important Than Ever.” Using data from USMI’s 2020 “MI in Your State” report, Johnson explains why low down payment lending will be even more critical for future homeowners as the country endures and recovers from the current COVID-19 pandemic. The report found that it could take the average American homebuyer over 20 years to save for a 20 percent down payment. With private MI, the wait time could drop to just 7 years with a 5 percent down payment. Low down payments with private MI enable more well-qualified borrowers to become homeowners while keeping more cash on hand, a critical aspect during these trying times. Private MI also assumes the first layer of protection against mortgage credit risk protecting the federal government, and thus, American taxpayers. She concludes stating, “right now, more than ever, we are even more aware of the benefits of owning a home—from building wealth to creating stability to the importance of having a safe place to call your own.”

We wish everyone a happy, healthy July 4^th holiday and thank those who continue to serve the nation on the front lines of the COVID-19 health crisis. USMI and our members remain committed to supporting the U.S. housing finance system, ensuring homeowners continue to have access to prudent, affordable, low down payment mortgages to keep more cash on hand, especially during these critical and uncertain economic times. Additional information can be found on USMI’s COVID-19 Resource page. Below are updates related to COVID-19 as well as other recent significant policy and regulatory developments.

USMI Releases its Annual State-by-State Report
New Board Chairman at USMI
FHFA and the GSEs Provide Clarity on PMIERs Amid COVID-19
SCOTUS Rules on CFPB’s Single-Director Structure
CFPB Proposes Rules on QM Definition and Extension of the GSE Patch
FHFA Issues Re-Proposed Enterprise Capital Rule
ICYMI: New Video Explains How Private MI Work

• USMI Releases its Annual State-By-State Report. On June 22, USMI released its annual report on low down payment lending at the state level. The report highlights that the number of low down payment loans backed by private mortgage insurance (MI) increased 22.9 percent in 2019; meanwhile saving for a 20 percent down payment could take potential homebuyers 21 years to save — three times the length of time it could take to save a 5 percent down payment. USMI also found that the top five states for low down payment home financing with private MI were Texas, California, Florida, Illinois, and Ohio.
  
  Upon release of the report, USMI President Lindsey Johnson noted that “Given the current economic environment and the desire of many people to keep more cash on-hand, low down payment loans are more important than ever. Loans backed by private MI are a great option as a time-tested means for accessing homeownership sooner while still providing credit risk protection and stability to the U.S. housing system.” See coverage of the report by National Mortgage News, Forbes, and Bankrate.

• New USMI Board Chairman. On July 1, USMI announced that Derek Brummer, President of Mortgage at Radian Group, will serve as the Chairman of USMI’s Board of Directors. Brummer, who was appointed Radian’s President of Mortgage in February, previously served as USMI’s Vice Chairman of the Board and brings extensive experience in housing finance. In the announcement, Brummer stated that he looks “forward to ensuring the industry remains well-positioned to serve as an important source of strength for the housing finance system during all market cycles, so consumers continue to have access to affordable, low down payment, conventional mortgages.”

• FHFA and the GSEs Provide Clarity on PMIERs Amid COVID-19. On June 26,the Federal Housing Finance Agency (FHFA) and the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, provided guidance on the Private Mortgage Insurer Eligibility Requirements (PMIERs), PMIERs 2020-01, effective June 30, 2020. PMIERs are a set of operational and risk-based capital requirements implemented in 2015 and updated in 2018 for private MI companies to be approved to insure loans acquired by Fannie Mae and Freddie Mac. Due to the unprecedented nature of the COVID-19 disaster, including its national scope and the ongoing duration of the health and economic effects, the PMIERs language needed additional clarity, which USMI is pleased FHFA, Fannie Mae and Freddie Mac understood and provided.
  
  USMI President Lindsey Johnson said in a statement, “USMI supports the actions taken by federal policymakers, particularly the FHFA, to stabilize the economy and provide assistance to those who have been impacted by the COVID-19 pandemic. USMI’s member companies are well-positioned to support the FHFA and GSEs’ efforts to ensure that homeowners who have been affected by COVID-19 are able to stay in their homes and maintain a safe and secure environment for their families.”

• SCOTUS Rules on CFPB’s Single-Director Structure. On June 29, the Supreme Court ruled in a 5-4 decision in Seila Law v. CFPB that the single-director structure of the Consumer Financial Protection Bureau (CFPB), where the leadership by a single director that is removable only “for cause” (inefficiency, neglect, or malfeasance), violates the Constitution. However, the Court did not invalidate the agency in its entirety. The majority held that the removal protection of the CFPB Director is severable from the other provisions of the Dodd-Frank Act that created the CFPB and defined its authorities and responsibilities. The CFPB did not challenge the decision and the White House released a statement saying the Supreme Court’s “decision represents an important victory for the fundamental principle that government officials should be accountable to the American people.” Given the FHFA has a similar structure, it is likely the legal conclusion may be applied to the FHFA. The Court’s decision opens the door for any future new administration to usher in new leadership of these two independent agencies.

• CFPB Proposes Rules on QM Definition and Temporary Extension of the GSE Patch. With the temporary QM category, also known as the “GSE Patch,” set to expire on January 10, 2021, the CFPB released Notices of Proposed Rulemakings (NPRMs) on a new QM definition and to temporarily extend the GSE Patch on June 22, 2020. Comments for the general QM definition are due 60 days after the rule is published in the Federal Register. In a statement after the release of the NPRMs, USMI President Lindsey Johnson stated, “USMI members, as takers of first-loss mortgage credit, emphasized the need to balance prudent underwriting with a clear standard that maintains access to mortgage finance for home-ready borrowers.”
  
  The CFPB previously released an Advanced NPRM on the QM definition over a year ago, after which USMI submitted a comment letter that among other things, recommended replacing the current GSE Patch by establishing a single transparent and consistent QM definition that balances access to mortgage finance credit and proper underwriting guardrails to ensure consumers’ ability to repay (ATR). USMI specifically recommended that the Bureau establish a list of transparent mitigating underwriting criteria (compensating factors) for loans with a debt-to-income ratios above 45 percent and up to 50 percent. USMI also recommended that, to provide a more level playing field between the Federal Housing Administration (FHA) and the conventional market, the QM Safe Harbor annual percentage rate (APR) cap of the Average Prime Offer Rate (APOR) + 150bps needs to be increased to not arbitrarily shift the market to FHA, or leave some home-ready borrowers without access to mortgage finance credit. Setting the cap at APOR + 200bps would limit this arbitrary shift in the market, preserve greater private capital participation in the pricing of risk, and promote better taxpayer protection.
  
  The Bureau’s June 2020 NPRM on the QM definition largely proposes an approach that would rely on a pricing spread between APR and APOR to determine QM status. While it is notable that the Bureau retained a QM Safe Harbor and QM Rebuttable Presumption, it is critical that the Safe Harbor threshold be increased from 150bps to 200bps above APOR, as it has been demonstrated that few loans are done outside of Safe Harbor. As USMI commented in its 2019 comment letter, it is essential that the Safe Harbor threshold be moved from 150bps to 200bps to ensure that creditworthy borrowers are not arbitrarily left only with the option of an FHA mortgage or left out of the market entirely, and to promote greater private capital participation in the pricing of risk and better taxpayer protection.

• FHFA Issues Re-Proposed Rule on Enterprise Capital. Another very significant rule recently released is the re-proposed Enterprise Regulatory Capital Framework (ERCF), which was published in the Federal Register this week, starting the 60-day clock for comments to be submitted. FHFA noted that one of the key reasons for the re-proposed rule is that establishing robust capital standards is a key step in the process to end the GSEs conservatorships, which was “a departure from the expectations of interested parties at the time of the 2018 proposal.” FHFA also noted that the re-proposed rule increases the quantity and quality of the regulatory capital at the GSEs to ensure their safety and soundness—with the overall capital required under the 2020 proposal being roughly $240 billion in loss absorbing capital—nearly $100 billion more than the 2018 proposal. FHFA officials believe that the re-proposed rule puts the GSEs on track to begin raising capital as soon as next year.
  
  USMI submitted a comment letter to the FHFA in 2018 when the ERCF was originally proposed. On May 21, USMI issued a statement in response to the re-proposed rule, sharing its support for “meaningful capital requirements” and recognizing the ERCF’s importance in determining the future role of the GSEs, how private capital, such as private MI, will be able to continue to support the conventional market to protect taxpayers, and importantly, determine consumers’ access to and cost of mortgage finance credit.

• ICYMI: New Video Explains How Private MI Works. As part of June’s National Homeownership month, USMI released a new video helping first-time homebuyers understand whether they are mortgage ready. The video explores low down payment financing options to future homeowners and explains the benefits of private mortgage insurance.