WASHINGTON — U.S. Mortgage Insurers (USMI), the association representing the nation’s leading private mortgage insurance (MI) companies, submitted its comment letter to the Consumer Financial Protection Bureau (CFPB or Bureau) for its proposed rule on the General Qualified Mortgage (QM) Definition under the Truth in Lending Act (Regulation Z).

“While the CFPB is undertaking a thoughtful process to update the General QM definition, USMI urges the Bureau to strike a proper balance between prudent and transparent underwriting standards, and access to affordable and sustainable mortgage finance credit for home-ready borrowers,” said Lindsey Johnson, President of USMI. “Changes to the QM definition will broadly inform standards and practices across the mortgage market, but the currently proposed rule could limit access to the conventional market for the very borrowers that have traditionally been underserved.”

To ensure the QM definition does not inadvertently limit access to credit for home-ready borrowers, and particularly minority borrowers, USMI recommends that the QM Safe Harbor should be set at 200 basis points (bps) above the Average Prime Offer Rate (APOR). USMI states that this modification to the proposed rule would create a level playing field for the QM standard across the conventional and government mortgage markets, adding that historical delinquency data demonstrates that conventional mortgages with rate spreads between 150 bps and 200 bps are prudently underwritten and sustainable loans that have performed well.

USMI highlights that “[a]ccording to 2019 Home Mortgage Disclosure Act (HMDA) data for conventional low down payment purchase mortgages (>80 percent loan-to-value ratio), Black and Hispanic borrowers were twice as likely as White borrowers to have mortgages with annual percentage rates in excess of the APOR plus 150 bps Safe Harbor spread. 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 significantly fewer competitive choices in terms of product offerings and loans.”

Further, USMI agrees with the Bureau’s assessment that a hard 43 percent debt-to-income (DTI) ratio cap would be the most harmful option for the General QM definition because it would severely limit access to credit in the conventional market. Consistent with its September 2019 comment letter in response to the CFPB’s Advance Notice of Proposed Rule (ANPR) on the QM Definition, USMI continues to believe that the best approach to a General QM definition would be a standard that includes a higher DTI threshold with specified compensating factors.

In its comments, USMI advises the CFPB to preserve robust and measurable underwriting standards and practices as part of the requirements for “consider and verify” that have been proven to balance access to credit and prudent mortgage underwriting standards. With the elimination of reliance on a DTI cap and the introduction of a “consider and verify” standard for mortgage underwriting, it is critical that the CFPB identify specific requirements or best practices to be used by lenders to qualify for the compliance safe harbor.

Other recommendations to the CFPB include: working closely with federal regulators to implement a transparent and coordinated housing policy that promotes access to credit and prudent mortgage underwriting and creates a level playing field; and reconsidering its approach to adjustable-rate mortgages (ARMs) by amending the NPR to exclude 5-year ARM products from the proposed treatment of short-reset ARMs, as data demonstrates that ≥5-year ARM performance is in line with, or better than, >20-year fixed rate mortgages.

Finally, USMI urges the CFPB to provide sufficient time for a smooth transition from the temporary QM category (known as the government sponsored enterprises or “GSE Patch”) to the new General QM definition. This is particularly important given the extensive and undetermined scope of COVID-19 as the financial services industry appropriately focuses resources on responding to the economic and health fallout from the pandemic.

USMI writes, “[d]epending on the complexity of the finalized revisions to the General QM definition, the significance of the penalties for a violation of the [ability to repay]/QM Rule, and the large number of mortgage industry participants that will need to update their operations and systems, USMI recommends that the Bureau set the sunset date for the GSE Patch to be at least six months after the effective date of the general QM definition final rule. This would allow lenders to use either the GSE Patch or the new General QM definition during the mortgage underwriting process.”

USMI’s full comments on the CFPB’s proposed General QM Definition can be found here; its comment letter to the Bureau on the GSE patch extension can be found here; the 2019 comment letter to the CFPB’s Advance NPR can be found here; and its blog on why the Safe Harbor threshold should be increased 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

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) for its re-proposed Enterprise Regulatory Capital Framework (ERCF). In its letter, USMI emphasizes the importance of constructing a balanced, transparent, and analytically justified post-conservatorship capital framework for the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

“USMI supports FHFA’s efforts on this important rulemaking. While sufficient levels of capital are important to the sustainable operation of Fannie Mae and Freddie Mac, excessive capital requirements could have a detrimental effect on mortgage availability and costs for consumers, and can inadvertently push mortgage lending outside of the conventional mortgage market,” said Lindsey Johnson, President of USMI. “As FHFA advances this rulemaking, a balance must be struck between prudently managing the GSEs’ risk and protecting taxpayers, while also ensuring that affordable low down payment mortgages remain available for borrowers.”

In its comments, USMI notes the important issues and specific components of the proposed rule that require further attention, as they could potentially create unintended negative consequences. USMI urges the adoption of a final regulation that appropriately balances taxpayer protection and support for the housing markets, consistent with the GSEs’ charters and unique role in the mortgage finance system. Continued access to sustainable, affordable conventional mortgages is particularly important for minorities, lower income individuals, and first-time homebuyers.

Further, USMI advocates for a rule that gives interested parties the opportunity to fully understand the basis for the elements of the proposal and submit beneficial comments to FHFA. USMI, along with other industry participants, continue to be concerned that subjective determinations have the potential to cause great harm to the housing market and are inappropriate if the GSEs are released from conservatorship. Moreover, the current proposed rule would require capital levels that are significantly higher than is necessary for the GSEs’ post 2008 financial crisis and does not reflect the improved loan underwriting required by the GSEs and the Dodd-Frank Act.

USMI’s comments also caution FHFA to avoid adopting a bank capital model given the insurance nature of the GSEs’ business, suggesting they should be subject to an insurance capital framework and that, if necessary, adjustments can be made to account for systemic risk. Additionally, USMI recommends that the risk-adjusted capital rule should be based on credit risk and be as risk-sensitive as possible, having non-credit risk concerns addressed through separate regulatory requirements.

USMI also advocates for more transparent and objective treatment of the GSEs’ counterparties, especially private mortgage insurers that meet a set of rigorous capital and operational requirements known as the Private Mortgage Insurer Eligibility Requirements (PMIERs). USMI adds that private mortgage insurers should not be subject to additional measures of creditworthiness given they already comply with, and exceed, PMIERs. Further, USMI suggests that the proposed rule should promote private capital through the use of both loan level credit enhancement, such as private MI, and through responsible credit risk transfer (CRT). For CRT, the proposed rule should be adjusted to reflect the risk-reduction benefit that is attained by properly priced CRT, and eliminate non-credit risk related buffers that overly penalize CRT to a point that will disincentivize the GSEs’ from de-risking.

Finally, USMI underscores that a revised capital standard is only one element of GSE reform, writing: “The FHFA should use its considerable authority, both as the regulator and conservator, to take steps to ensure that the GSEs are appropriately regulated and do not cross the bright line between primary and secondary mortgage markets. Specifically, we believe that the GSEs should be subject to utility-like regulation, with capped rates of return, restricted to explicitly authorized secondary market activities, and with open and transparent underwriting engines and systems, and publicly disclosed pricing. Doing so would maintain the GSEs as market makers, provide stability through different market cycles, protect taxpayers, and ensure accessibility to sustainable and affordable mortgage finance credit.”

USMI’s full comments on the 2020 NPR can be found here and an executive summary can be found here. Its comments on the 2018 NPR 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.

WASHINGTON — Lindsey Johnson, President of the U.S. Mortgage Insurers (USMI), today issued the following statement on the U.S. Senate’s bipartisan confirmation of Dana Wade to serve as Federal Housing Administration (FHA) Commissioner:

“USMI applauds the Senate for its bipartisan vote to confirm Dana Wade to serve as FHA Commissioner. Commissioner Wade is a respected expert with broad experience in financial and housing policy issues, which provide her of the adequate tools to tackle the challenges facing the FHA and housing finance system going forward.

“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.

“The FHA has improved its financial health over the last few years, however it is important that policymakers keep their focus on ensuring that the FHA is not overexposing taxpayers to undue risk. The FHA-insured market and the conventional market should complement one another. For more than 60 years private mortgage insurance has played a leading role in promoting affordable and sustainable homeownership. We look forward to working closely with Commissioner Wade in seeking ways to establish a more complimentary, collaborative, and consistent housing policy that can expand private capital’s role in shouldering more risk in front of taxpayers in the housing market.”

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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.

WASHINGTON — U.S. Mortgage Insurers (USMI) today announced that Derek Brummer will serve as the association’s new Chairman of the Board. Brummer is the President of Mortgage at Radian Group Inc. (NYSE: RDN). He succeeds Bradley Shuster, Executive Chairman of NMI Holdings, Inc. (Nasdaq: NMIH). Brummer’s appointment comes at a significant time as the Administration continues to take steps to reshape the government sponsored enterprises (GSEs), and the housing finance system responds to the current economic environment and the needs of homeownership during the novel coronavirus (COVID-19).

“For more than 60 years, the MI industry has helped American families become homeowners and has stood in front of mortgage credit risk that the government and taxpayers may otherwise have to bear. As sophisticated managers of mortgage credit risk and sources of dedicated private capital, MI companies serve a critical role in the U.S. housing finance system. As USMI’s Chairman, I look 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,” said Brummer. “Over the last several years, more than 80 percent of first-time homebuyers have used low down payment mortgages. Today, these loans backed by private MI are more important than ever to enable borrowers to keep more cash on-hand, enabling those borrowers to purchase homes sooner than they otherwise could and begin to build the long-term wealth and stability that can come with homeownership.”

Brummer previously served as USMI’s Board Vice Chair. He was named Radian Group Inc.’s President of Mortgage in February and brings extensive experience in the housing industry to USMI’s chairmanship. Brummer joined Radian in 2002, serving as 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. Before joining Radian, Brummer was a corporate associate at Allen & Overy LLP as well as Cravath, Swaine & Moore LLP in New York.

“Derek’s experience and leadership in the mortgage insurance industry are invaluable assets to our industry association. We are excited to welcome and work with him as USMI’s new Chairman,” said Lindsey Johnson, President of USMI. “I want to also offer my deep gratitude to Bradley Shuster for his dedication and commitment to USMI as Chairman for the past two years. We greatly appreciate Brad’s efforts, which have been critical to the industry, and we value his continued role on our board of directors.”

Mark Casale, who is the President and CEO of Essent Guaranty, will take over as Vice Chairman of the Board of USMI, and Rohit Gupta, President and CEO of Genworth MI, will serve as USMI’s Treasurer and Secretary of the Board.

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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.