CONGRATS TO THE NATS! While the baseball season has officially ended, housing finance reform still has a few innings left in the game. On Monday, National Mortgage News reported on U.S. Mortgage Insurers’ (USMI) release of new details on the growing mortgage insurance credit risk transfer (MI CRT) market. USMI President Lindsey Johnson also spoke about innovative MI CRT on a panel at the Structured Finance Association’s (SFA) Residential Finance Symposium. On the housing finance reform front, Federal Housing Finance Agency (FHFA) Director Mark Calabria said that he is currently in negotiations with the Treasury Department to amend the Preferred Stock Purchase Agreements (PSPAs). He also spoke at an event hosted by the American Action Forum (AAF), where he was followed by a panel discussion on housing finance reform. Last week, FHFA released its 2019 Strategic Plan and 2020 Scorecard for Fannie Mae and Freddie Mac (“the GSEs”). This comes following several recent comments by Director Calabria reiterating the agency’s commitment to responsibly ending the GSEs’ conservatorships. In mid-October, Citizens Against Government Waste (CAGW) applauded the direction of FHFA under Director Calabria’s leadership. Lastly, we’re seeing more movement coming with the nomination of Brian Montgomery as Deputy Secretary of the Department of Housing and Urban Development (HUD) in early October.
Despite a busy month, there’s still plenty to look forward to at the #NEXTDC19 conference on November 18 and 19, which will bring policy experts together and create a great stage for lively discussions on the future of housing policy. Most importantly, ahead of the Veterans Day holiday, we want to thank and recognize all of the veterans who have bravely served in the United States Armed Forces. We are grateful for your service.
USMI announces details on MI Credit Risk Transfer. On November 4, USMI announced that private MI companies transferred nearly $34 billion in risk on nearly $1.3 trillion of insurance-in-force from 2015 to 2019 to the global reinsurance and capital markets. USMI released details on the development and growth of the MI CRT market, which outlines the types of structures being used by the industry to transfer risk to reduce volatility and exposure of mortgage credit risk within the mortgage finance system, including to the GSEs, and therefore taxpayers. It also finds that active adoption of CRT by private mortgage insurers has transformed the industry to better insulate it from cyclical mortgage markets and enhanced MIs’ ability to be more stable, long-term managers and distributors of credit risk.
USMI President Lindsey Johnson spoke to MI CRT on a panel at the SFA’s Residential Finance Symposium. She also spoke with National Mortgage News on the innovative ways private MI is now actively managing mortgage credit risk. Johnson stated that in recent years mortgage insurers are not just participating in GSE CRT transactions, but also distributing their own risk through MI CRT.
AAF hosts panel discussion on housing finance reform. On November 6, AAF hosted a panel titled, “Fannie Mae and Freddie Mac: What’s Next?” Speakers included FHFA Director Mark Calabria; Dr. Norbert Michel, Director of the Center for Data Analysis at the Heritage Foundation; Dr. Michael Stegman, Senior Fellow of the Housing Finance Program at the Milken Institute Center for Financial Markets; and Thomas Wade, Director of Financial Services Policy at AAF. The panel was moderated by CNN’s senior economics writer, Donna Borak. The panel discussed the Treasury Department’s and HUD’s GSE Reform Plans, FHFA’s and Treasury’s actions to allow for the recapitalization of the GSEs, and additional reform initiatives by the Administration.
FHFA releases new Strategic Plan and Scorecard for Fannie Mae and Freddie Mac. On October 28, FHFA released its 2019 Strategic Plan and 2020 Scorecard, detailing the near-term future for the GSEs. In the Strategic Plan, FHFA provided a roadmap on how the GSEs will fulfill their statutory missions and maintain their focus on safety and soundness while preparing for what the FHFA calls “a responsible end to the conservatorships.” The 2020 Scorecard details how the GSEs will remain accountable for “the effective implementation of the Strategic Plan in the coming year.” Both documents outlined three key goals: (1) foster competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets that support sustainable homeownership and affordable rental housing; (2) operate in a safe and sound manner appropriate for entities in conservatorships; and (3) prepare for their eventual exit from conservatorships.
In FHFA’s press release, Director Calabria said, “Our nation’s mortgage finance system is in urgent need of reform. The vision for reform articulated in the Strategic Plan and advanced in the Scorecard will serve borrowers and renters by preserving mortgage credit availability, protect taxpayers by ensuring Fannie Mae and Freddie Mac can withstand an economic downturn, and support a strong and resilient secondary mortgage market.”
FHFA intensely focused on the GSEs exiting conservatorship. At a meeting with reporters on October 31, Director Calabria noted that he is not giving Fannie and Freddie an easy pass. “I’ll certainly say I have yet to meet anybody who wants to get out of conservatorship as much as Fannie and Freddie do. But certainly, what you’ve been seeing over the last few years is not the kind of day-to-day behavior that you would expect from companies that are in conservatorship.”
Earlier that week, Director Calabria gave a keynote speech at the Mortgage Bankers Association’s Annual Convention in Austin, TX, and explained that after just one quarter of capital retention where Fannie and Freddie profits weren’t swept to Treasury, the companies doubled their capital buffers. “Fannie and Freddie will move forward thoughtfully, but this does not mean moving slowly.” But as exiting the conservatorship moves closer, Director Calabria explained he will ensure that it is done right. “I will not end the conservatorship unless I am confident that once Fannie and Freddie leave, they will never have to return.”
CAGW applauds FHFA’s new leadership. On October 16, CAGW wrote that “Mark Calabria is moving FHFA in a new direction and making taxpayers his top priority.” CAGW provided several examples of Director Calabria’s work, including FHFA’s focus on building capital at the GSEs to protect taxpayers, revising the GSEs’ multifamily lending caps, and the termination of the GSEs’ Mortgage Servicing Rights (MSR) pilot program. Regarding the MSR pilot, CAGW noted that FHFA should apply this logic to any other pilots that allow the GSEs to push into markets and engage in activities that are already thriving. It is promising that Director Calabria is reviewing all pilots and new activities that expand the GSEs’ market dominance and encourages the enterprises to expose taxpayers to additional risk.”
Nomination of Brian Montgomery as HUD Deputy Secretary. On October 8, HUD announced that Commissioner Montgomery had been nominated to serve as Deputy Secretary and the Senate Banking Committee will consider his nomination on November 20. Montgomery, who also serves as HUD’s Assistant Secretary for Housing and Federal Housing Commissioner, would manage the day-to-day operations of the agency and assist Secretary Carson in leading the department’s nearly 8,000 employees. USMI applauded the decision, noting “Commissioner Montgomery is a respected, seasoned mortgage finance expert, and his unique experience and past public service have been major assets to the FHA. His extensive background will allow him to immediately begin work on the most important issues facing the housing finance system.”
Upcoming events. The#NEXTDC19 conference is an event focused on delivering policy intel. On November 18 and 19, it will bring together the most influential housing policy leaders, mortgage lenders, and fintech firms.
News Filter: Newsletter
Newsletter: September 2019
Congress is back from recess, Pumpkin Spice lattes are back on the menu, and housing finance reform is back at the top of news headlines in Washington this fall. In September, the Trump Administration released plans to reform the nation’s housing finance system. USMI issued a statement applauding the initiative and calling for Congress to address the GSEs’ underlying structural challenges and promote a coordinated federal housing policy. The Senate Banking Committee also held a hearing on the matter to learn more about the Administration’s Plans. The same week that the Administration released its Plans, the Fifth Circuit ruled in favor of GSE shareholders in their lawsuit against the U.S. Treasury, as the court allowed the shareholders to reinstate claims alleging that FHFA is unconstitutionally structured. While the fate of the legal challenges is still unclear, what is clear is that FHFA is moving ahead on many of its plans to review and make changes to the current programs and activities of the GSEs. Last week, FHFA announced an increase to the caps on the amount of multifamily loans the GSEs can purchase next year, and just this week FHFA announced an end to the GSEs’ pilots to offer lines of credits to non-bank servicers that pledge agency mortgage servicing rights (MSRs) as collateral. Additionally, the CFPB closed its comment period on its Advance Notice of Proposed Rulemaking (ANPR) this week on the “Qualified Mortgage Definition under the Truth in Lending Act.” USMI submitted comments outlining several recommendations to the Bureau to balance prudent underwriting with consumers’ access to mortgage finance credit. Lastly, the House Financial Services Committee held a markup on several housing related bills, including legislation to reauthorize the HUD to implement credit scoring pilots in the underwriting process for FHA insured mortgages.
- The Trump Administration’s Housing Finance Reform Plans. On September 6, the U.S. Treasury Department and the U.S. Department of Housing and Urban Development (HUD) released their comprehensive Housing Reform Plan and Housing Finance Reform Plan to end the federal conservatorships of the government sponsored enterprises (GSEs), which have lasted more than 11 years. USMI released a statement that applauds Treasury and HUD for their comprehensive plans and calls for Congress to address the underlying structural challenges of the GSEs. USMI wrote, “the Administration’s proposals to reduce taxpayer risk exposure and address the areas of misaligned incentives of the GSEs while increasing transparency and market discipline could be the catalyst to break the legislative logjam and enable policymakers to enact comprehensive reforms.” USMI also appreciates that Treasury and HUD identified specific areas where the Administration can focus its efforts to put the housing finance system on a more sustainable path. Many of the actions proposed by the Administration’s Plans align with USMI’s principles for Administrative Reform, including increasing transparency in the housing finance system and expanding the role of private capital ahead of taxpayer risk.
- Senate Banking Committee Hearing. After the release of the Administration’s Plans, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing on September 10 titled “Housing Finance Reform: Next Steps,” in which HUD Secretary Ben Carson, Treasury Secretary Steve Mnuchin, and Federal Housing Finance Agency (FHFA) Director, Mark Calabria, delivered their testimonies and answered questions from committee members.
All three Administration officials reiterated the need for Congress to provide input on reform, inviting the Legislative Branch to take a leadership role. Treasury Secretary Mnuchin said, “[p]ending legislation, Treasury will continue to support FHFA’s administrative actions to enhance the regulation of the GSEs, promote private sector competition, and satisfy the preconditions set forth in the plan for ending the GSEs’ conservatorships.” FHFA Director Mark Calabria also noted that “[the GSEs] have expanded with the economy recently yet maintained risk and capital levels that ensure they will fail in a downturn. This pro-cyclical pattern harms low-income borrowers, making it easier to buy homes beyond their means when the economy is strong and harder to keep those homes when the economy is weak.”
Chairman Crapo (R-ID) said in his opening statement that “[m]any of the legislative recommendations in the Plans that were released are consistent with my outline to fix our housing finance system, including attracting private capital back into the market; protecting taxpayers against future bailouts; and promoting competition.” Ranking Member Brown (D-OH) summarized the foundational principles for reform around which housing stakeholders are coalescing and added that “[w]e need 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. That means we need policies that focus on increasing service for underserved markets, like rural areas and manufactured homeowners, and borrowers who have been locked out of the housing market over decades of discrimination.” - Fifth Circuit rules on FHFA. On September 9, the Fifth Circuit ruled in favor of investors suing the U.S. Treasury Department, allowing them to proceed with previously dismissed claims alleging the FHFA exceeded its authority with “net worth sweep.” “Congress created FHFA amid a dire financial calamity, but expedience does not license omnipotence,” U.S. Circuit Judge Don R. Willett wrote for a nine-member majority. “The shareholders plausibly allege that the Third Amendment exceeded FHFA’s conservator powers by transferring Fannie and Freddie’s future value to a single shareholder, Treasury.” The case will now be discussed in a Texas federal court where it was originally filed in 2016. The court will decide whether the restored investor claims should go to trial or be resolved on summary judgement.
- FHFA increases GSEs multifamily lending caps and ends GSE MSR Pilot Program. On September 16, the FHFA increased caps on the amount of multifamily loans the GSEs can purchase next year. FHFA will now limit Fannie Mae and Freddie Mac to purchasing over $100 billion each -up from $35 billion each in the years 2018 and 2019- in multifamily-housing residential loans, between the fourth quarters of 2019 and 2020. FHFA also made other revisions to how the GSEs can conduct their multifamily businesses, now requiring that the two firms must have over one-third (37.5 percent) of their multifamily activities directed toward affordable housing. Furthermore, the new lending caps eliminate exclusions that allowed the GSEs to purchase loans in excess of the limits previously in place.
“Multifamily housing is a critical component of addressing our nation’s shortage of affordable housing,” said FHFA Director Mark Calabria. “These new multifamily caps eliminate loopholes, provide ample support for the market without crowding out private capital, and significantly increase affordable housing support over previous levels. The Enterprises should also manage under the caps to provide consistent, stable liquidity to the market throughout the entire five-quarter period.”
Earlier this week, FHFA announced an end to the GSEs’ pilot program to finance MSRs. It was reported on May 7, that Freddie Mac had provided lines of credit for several nonbank servicers. In making the announcement, Director Calabria noted “[t]he MSR market is already served by a wide assortment of highly competitive private sources of capital and financing. Going forward, the Enterprises should focus on activities that are core to the guaranty business, mitigate risk, and are essential to end the conservatorships.” - CFPB closes comment period on QM definition. On September 16, the Consumer Financial Protection Bureau (CFPB) closed its comment period on its ANPR on the “Qualified Mortgage (QM) Definition under the Truth in Lending Act,” in light of the pending expiration of the provision commonly referred to as the “GSE Patch” in January 2021. USMI applauded the CFPB’s initiative of undertaking an assessment of this critical rule. It submitted a comment letter offering specific recommendations for replacing the current “GSE Patch” to establish a single transparent and consistent QM definition in a way to balance access to mortgage finance credit and proper underwriting guardrails to ensure consumers’ ability-to-repay (ATR). USMI’s recommendations include:
- Maintaining the ATR and product restrictions as part of any updates to the QM definition to ensure discipline in the lending community and to protect consumers;
- Retaining specific underwriting guardrails such as a debt-to-income (DTI) threshold but notes that DTI should not be a stand alone factor for ATR. Further, the USMI comment letter demonstrates through data that the DTI threshold should be adjusted to better serve consumers;
- Because DTI should not be a stand along measure of ATR, USMI recommends developing a single set of transparent compensating factors for loans with DTIs above 45 and up to 50 percent for defining QM across all markets, similar to how the GSEs, FHA, and VA use compensating factors in their respective markets today.
Importantly, nine Democratic U.S. Senators led by Senate Banking Ranking member Sherrod Brown sent a letter to the Bureau stating that as it considered amending the existing QM rule, the Bureau “must not undermine the elements of the rule that have made it effective: prohibitions on unsustainable product features and a verifiable demonstration at loan origination that the lender has evaluated the borrower’s ability to repay their loan.”
Other associations and entities such as the National Association of Hispanic Real Estate Professionals (NAHREP), National Association of Home Builders, Digital Federal Credit Union, National Association of Federally-Insured Credit Unions (NAFCU), CNB Bank, International Bancshares Corporation, Wisconsin Credit Union League, Highlands Residential Mortgage, among others, share similar views as USMI that setting transparent compensating factors will help expand credit availability for many potential homeowners who may otherwise be left behind.
- House Financial Services Committee Markup. On September 18-20, the U.S. House of Representatives Committee on Financial Services, held a markup hearing in which, along with several issues, they discussed H.R. 123, the “Alternative Data for Additional Credit FHA Pilot Program Reauthorization Act,” and reported the legislation favorably to the House with a 32-22 vote. This bill would reauthorize the HUD statutory authority to implement a pilot program to increase credit access for borrowers with thin or no credit files through the use of additional credit data in the underwriting for FHA-insured mortgages.
Newsletter: August 2019
As the August recess begins, there have been several notable developments in housing finance. Last Thursday, the Consumer Financial Protection Bureau (CFPB) released its Advanced Notice of Proposed Rulemaking on the “Qualified Mortgage (QM) Definition under the Truth in Lending Act” which seeks to revise the QM definition as the GSE Patch nears expiration. Moody’s Investor Service released a proposed update to its residential mortgage-backed security (RMBS) rating methodology which would affect the rating for bonds associated with the GSEs’ CRT transactions and non-agency RMBS. Importantly, the new standard recognizes the loss reducing benefits of private mortgage insurance (MI). The Urban Institute published an article highlighting private MI and the benefits of reducing the severity of losses for those holding mortgage credit risk.
Also, on the regulatory front, as many financial institutions look to implement the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) accounting standard, FASB has announced proposed changes, including delaying the implementation deadline for private companies as well as small public companies. USMI released an update on the treatment of loan level credit enhancement provided under the CECL standard, providing information to lenders of all sizes on how they might mitigate loss reserve requirements under the new standard. Housing finance reform continues to gain attention in recent weeks with Federal Housing Finance Agency (FHFA) Director Mark Calabria recently giving an update on the timing of the release of the Administration’s plans to reform the housing finance system. Lastly, there have been a number of studies and reports in recent weeks that continue to cite consumers’ misperception that they need a large down payment to qualify for homeownership. USMI published a new column that highlights low down payment mortgage options available to help home-ready borrowers attain sustainable homeownership sooner.
- CFPB’s ANPR on Qualified Mortgages. On July 25, the CFPB released an Advanced Notice of Proposed Rulemaking on the “Qualified Mortgage Definition under the Truth in Lending Act.” The CFPB is considering whether to revise the QM definition in light of the pending expiration of the Temporary GSE QM loan category provision, commonly referred to as the “GSE Patch,” in January 2021. The same statutory product restrictions exist for loans under the Patch as for other QM loans, however these loans are not subject to the 43 percent debt-to-income (DTI) limit—a significant exception that has supported a substantial portion of the overall housing market. As takers of first-loss mortgage credit risk with more than six decades of expertise and experience underwriting and actively managing that risk, USMI members understand the need to balance prudent underwriting using a clear and transparent standard to ensure sustainable lending with the need to maintain access to affordable mortgage finance credit for home-ready borrowers. Following the release of the ANPR, USMI published a blog with observations and recommendations for replacing the GSE Patch.
- Moody’s releases proposed update to RMBS ratings. Moody’s recently released a proposed update to its RMBS rating methodology which would affect the rating for bonds associated with the GSEs’ CRT transactions and non-agency RMBS. Importantly, the new standard gives more credit to deals with private MI. USMI submitted a letter on July 29 to Moody’s in response to request for comment by Moody’s on the new standard, which among other things commends Moody’s for many of the necessary updates provided in the proposed standard and asks for additional transparency around details about the benefits of MI, the proposed rejection rates, and Moody’s methodology for determining maximum insurance payout and allocation based on an insurer’s rating.
- Urban Institute publishes article on risk reducing benefits of PMI. Urban Institute released a paper entitled, “Private Mortgage Insurance Reduces the Severity of Losses for Those Holding Risk,” that focuses on Moody’s recent proposed updates to its RMBS rating methodology, which will affect the ratings of bonds for the GSEs’ CRT deals and non-agency RMBS, and would give more credit to deals with MI. In the report, Urban notes, “given the increased focus on the topic, understanding the historical behavior of GSE loans with mortgage insurance is important. Examining Fannie Mae loans from 1999 through the first quarter of 2018, we conclude that PMI reduces the loss severity of loans with high loan-to-value (LTV) ratios by 19 to 24 percentage points—a very substantial reduction. So, it is important to recognize PMI’s contribution when developing measures assessing loan-level risk, giving proper “credit” in sizing capital requirements or assessing subordination levels for securitizations.”
- Current Expected Credit Loss (CECL) accounting standard. Over the last couple of weeks, FASB has announced several proposed changes for the CECL accounting standard, including delaying the implementation deadline for private companies as well as small public companies (those with a market capitalization below $250 million and annual revenue of less than $100 million). If that proposal is enacted, the standard for those companies would not take effect until January 2023. CECL is a fundamental shift in how loss reserves are accounted for and incurred. Instead of waiting until losses are probable, institutions will forecast losses and establish reserves at the time of origination. The final rule was announced on June 16, 2016 and will impact any financial institution that holds loans on its balance sheet at amortized cost, such as banks, credit unions, and real estate investment trusts (REITs). Public companies filing with the Securities and Exchange Commission (SEC) will need to adopt CECL for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
As noted by the Government Accountability Office (GAO), “CECL is considered by some to be the most significant accounting change in the banking industry in 40 years.” Banking regulators – the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC) – jointly issued a final rule on CECL’s implementation and have proposed changing the allowance for home and lease losses as a new defined term.
Ahead of the implementation, and as lenders look to prepare as the implementation deadline approaches, USMI published a fact sheet on their website to provide information to lenders about the potential impact CECL may have on their books of business and how loan level credit enhancement, such as private MI, can help offset loss reserve requirements. - FHFA Director gives update on the Administration’s GSE plan. In March President Trump signed an Executive Order that directed federal agencies, most notably the Treasury Department and the Department of Housing and Urban Development, to provide both administrative and legislative solutions for modernizing the housing finance system and ending the conservatorships of the GSEs. Recently in an interview with Reuters, FHFA Director Mark Calabria said that he now expects the Administration will release reports developed by the Departments of Treasury and of Housing and Urban Development that outline the Administration’s plan for releasing Fannie Mae and Freddie Mac from conservatorship to be published at the end of August or early September
Last fall, USMI released a white paper highlighting several areas of alignment around administrative reform that can be implemented in lieu of comprehensive legislative action by Congress. The specific recommendations proposed by USMI include reducing the duopolistic market power of the GSEs, increasing transparency, expanding private capital and reducing taxpayer risk, and promoting a strong regulator that establishes uniform standards and uses transparent processes to assess the GSEs activities and products. - USMI publishes new column on low down payment options. Earlier this month, USMI published a new column, “Buy a home without breaking the bank.” The column highlights the several solutions available to financial obstacles that may arise when buying a home, such as the 20 percent down payment. According to a recent report, 49 percent of non-homeowners stated that not having enough money for a down payment and closing costs was a major obstacle to purchasing a home. But data shows many aspiring homebuyers can afford to buy a home with less than 20 percent. Another survey found that among first-time homebuyers who obtained a mortgage, approximately 80 percent had down payments of less than 20 percent. The article links readers to LowDownPaymentFacts.com where consumers can learn about the number of different low down payment mortgage options available to them and how to become “home-ready.”
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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.
Newsletter: June 2019
Washington is buzzing with activity on the housing finance front, both in market developments and policy discussions as FHFA Director Calabria continues to outline his plans for Fannie Mae and Freddie Mac (“the GSEs”).
Also, June is National Homeownership Month! On June 5, USMI released a new report on how private mortgage insurance (MI) helps borrowers get into homes sooner. Brad Shuster, USMI Chairman and Executive Chairman of the Board of NMI Holdings, Inc., penned an op-ed in The Hill highlighting some key points from the report. In addition, the Federal Housing Finance Agency (FHFA) finalized their Single Security Initiative to create a common single-family securities program for the GSEs after the launch of the Uniform Mortgage-Backed Security (UMBS). Fannie Mae published the results of a nationally representative survey that revealed most consumers overestimate the requirements to get a mortgage. Lastly, the Senate confirmed two key positions for the U.S. Department of Housing and Urban Development (HUD) and the Senate Banking Committee scheduled a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions (SIFIs)?”
- USMI releases state-by-state report on role of private MI. USMI released its second annual report on the role of private MI facilitating low down payment lending in all 50 states and the District of Columbia. The report found more than 30 million homeowners have been served by MI since 1957, including more than one million people in 2018 alone, and breaks down on a state-by-state basis, low down payment mortgage lending with private MI. It also provides an analysis of how long it would take those borrowers to save for a 20 percent versus a five percent down payment. The report finds that the top five states for the number of borrowers helped by private MI in 2018 were Texas, Florida, California, Illinois, and Ohio. The complete report on MI in the U.S. is available here.
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- Brad Shuster, USMI Chairman and Executive Chairman of the Board of NMI Holdings, Inc, penned an op-ed in The Hill. Shuster celebrated National Homeownership Month with an op-ed in The Hill that highlights the national conversation about how to best reform the U.S. housing finance system to sustain and grow homeownership in a safe and affordable way. Importantly, Shuster highlights the very important role that private MI plays in ensuring home-ready borrowers have access to sustainable low-down payment lending. Mr. Shuster notes that the recently released USMI state-by-state report, “showcases how private MI helps hard-working, home-ready families access the conventional mortgage market, even when they don’t have a large down payment.”
Shuster also notes the importance for policymakers to understand the “long, time-tested role MI has played as they seek to create a more robust housing finance system. Private MI serves as protection against mortgage credit risk if a borrower defaults on their mortgage.”
- FHFA sends Annual Report to Congress and Director Calabria calls for legislative reforms. Last week, FHFA sent its Annual Report to Congress, which included Director Calabria’s legislative recommendations for housing finance reform. In the FHFA 2018 Report to Congress, FHFA reported on a number of activities executed over the last year by the GSEs. While the report was drafted (and likely finalized) prior to Director Calabria’s confirmation (FHFA is required to submit the report each year before June 15), the Director wrote an opening letter to Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) to reiterate his priorities for the GSEs. Director Calabria underscored the need for reform, stressing that taxpayers remain exposed to undue mortgage credit risk and to urge Congress to enact legislation.
In the letter, Director Calabria outlined specific recommendations for legislative reforms, including a request for Congress to give him authority to grant new charters to increase competition against the GSEs’ “duopoly” suggesting, “[t]o promote competition, Congress should authorize additional competitors and provide FHFA chartering authority similar to that of the Office of the Comptroller of the Currency.” He also called for Congress to grant FHFA additional authority to provide oversight of counterparties and suggested that FHFA should have greater discretion over the GSEs’ regulatory capital. While Director Calabria has noted in public speeches that only Congress has the authority to provide for an explicit government guaranty, he did not specifically call for Congress to establish an explicit government guaranty in his letter.
- The GSEs complete their Single Security Initiative and launch UMBS. Earlier this month, Fannie Mae and Freddie Mac officially moved to issue the Uniform Mortgage-Backed Security (UMBS). According to HousingWire, the UMBS is a common security through which the GSEs will finance qualifying fixed-rate mortgage loans backed by one- to four-unit single-family properties. Previously, the GSEs only issued securities through their own programs/platforms, which meant an inevitable disparity and inconsistencies existed between the two. Fannie Mae’s program has historically been far more liquid than Freddie Mac’s, which created an imbalance between their trading volumes. Under the new initiative, FHFA will require Freddie Mac to remit homeowners’ mortgage payments to investors in 55 days rather than 45, which is consistent with Fannie Mae’s guidelines.
Following the launch, Renee Schultz, Senior Vice President of Capital Markets at Fannie Mae, released a statement calling the launch “a major milestone that marks the successful implementation of the Single Security Initiative.” FHFA Deputy Director Robert Fishman stated, “[b]y addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation’s housing finance system.” - Fannie Mae consumer survey finds knowledge gap to obtain a mortgage. On June 5, Fannie Mae published the results of a survey of 3,647 Americans which found that most consumers vastly overestimate the requirements to obtain a mortgage. “The lack of mortgage qualification understanding is pervasive, even among current homeowners, those who say they are actively planning to purchase a home in the next three years, and those who successfully answered questions testing general financial literacy,” the researchers wrote. For example, when asked how much money a borrower is required to put down, 40% said they didn’t know. Of those who did have an idea, they cited 10% as a required minimum.
- Senate Banking Focuses on the GSEs as SIFIs. The Senate Banking Committee has scheduled a hearing entitled “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?” The hearing is timely given FHFA Director Calabria has repeatedly said “the path out of conservatorships that we will establish for Fannie and Freddie is not going to be calendar dependent. It will be driven, first and foremost, by their ability to raise capital.” It also comes as policymakers and stakeholders wait for FHFA action following the agency’s Notice of Proposed Rulemaking on the Enterprise Capital Framework that was released last summer and for which the comment period closed in November 2018. USMI submitted a comment letter, which can be found here.
- Senate confirms HUD nominees. Finally, yesterday, the Senate voted to confirm two HUD nominees: Seth Appleton to be the Assistant Secretary for Policy Development and Research; and Robert Hunter Kurtz to the be the Assistant Secretary for Public and Indian Housing.
Newsletter: April 2019
It has been a busy week in Washington with renewed attention on housing finance reform in both Congress and the Administration. This week, the Senate Banking Committee (SBC) held two hearings on Chairman Mike Crapo’s (R-ID) Housing Reform Outline, where USMI President Lindsey Johnson appeared as an expert witness on the second day of hearings. Prior to testifying at the hearing, Johnson published a blog on the importance of private mortgage insurance (MI) to borrowers and taxpayers in any reformed housing finance system. On the other side of Capitol Hill, House Financial Services Committee (HFSC) Chairwoman Maxine Waters (D-CA) announced the Committee’s hearings for the first two weeks of April, several of which will address affordable housing. On Pennsylvania Avenue, President Donald Trump signed a memorandum initiating housing reform in the housing finance system. There were also developments at the Federal Housing Administration (FHA) and Fannie Mae and Freddie Mac (the GSEs). The FHA told lenders this month that it is tightening standards on government-backed mortgages due to concerns of increasingly risky loans, while the GSEs both appointed new chief executive officers.
- USMI’s President testifies before the Senate Banking Committee. This week, the SBC held two hearings to discuss Chairman Crapo’s Housing Reform Outline. USMI President Lindsey Johnson testified before the committee on the second day of hearings, addressing the Chairman’s Outline and discussing the role private MI can play in a reformed housing finance system. USMI’s testimony specifically outlined the consistencies between Chairman Crapo’s Outline and USMI’s own principles, including ensuring access for creditworthy borrowers and all lenders, increasing transparency, and protecting taxpayers. Johnson also made several recommendations before the committee, chief among them that any proposal should rely on loan-level credit enhancement at origination done by entities that can manage mortgage credit risk through all market cycles.
- During the hearing, Sen. Doug Jones (D-AL) brought up the issue of down payments and how Americans are in many cases unable to save enough to buy a home, and specifically asked what can be done about the problem and what are models out there for down payment assistance programs. Johnson answered Sen. Jones, saying, “We think that that is an enormous challenge; it’s specifically what our industry is focused on – is bridging that gap between an individual bringing 20 percent to the closing table and actually having access to the conventional market. And you think about the time that it takes for that individual to save that down payment, we’ve tracked that data and we’ve found that it takes two decades for a firefighter, a teacher in many areas to save that up. For minorities, we know that it’s even longer. So, we really have to make sure there are low down payment options available in the market.”
- Following Johnson’s remarks, President Elect of the National Association of REALTORS® Vince Malta also noted the importance of MI, stating, “There are vehicles out there that can assist with lower down payment loans that are working very well in the marketplace, a combination of private capital through MI and sound underwriting standards. Those are the guides to homeownership.” The hearings demonstrated a near universal opposition to recapitalizing and releasing the GSEs, an action that Sen. Mark Warner (D-VA) characterized as “recreat[ing] the old status quo and it doesn’t make a lot of sense.” Further, there was broad support among the witnesses for restructuring the GSEs as highly regulated utility-like entities to increase transparency, limit the GSEs’ activities to secondary market functions, and ensure that certain protections—such as equitable pricing for lenders of all sizes and types—are maintained. The full list of witnesses and their testimonies can be found here.
- USMI releases blog on importance of MI in the housing finance system. USMI President Lindsey Johnson published a blog this week ahead of the SBC hearings on Chairman Mike Crapo’s Housing Reform Outline that highlights the critical role private MI plays in housing finance reform, with particular emphasis on how private MI benefits homebuyers and protects taxpayers. The blog states that with the recent activity in the housing reform debate, now more than ever private MI will continue to play its invaluable role in providing access to credit and unparalleled taxpayer protection.
- President Trump signs memorandum initiating reform of the housing finance system. On March 27, President Trump signed a memorandum calling for relevant agencies to develop a reform plan for the housing finance system. According to the memorandum, these reforms will seek to end the conservatorship of the GSEs and improve regulatory oversight over them, promote competition in the housing finance market, create a system that encourages sustainable homeownership, and protect taxpayers against bailouts. The Secretary of the Treasury Steven Mnuchin and Secretary of Housing and Urban Development Ben Carson will be tasked with addressing their respective issues and are expected to submit reform plans as soon as practicable. In the fall of 2018, USMI released Areas of Alignment for Administrative Reformthat highlighted a number of specific steps the Administration can and should take before allowing the GSEs to build capital and be released from conservatorship. A list of the 11 specific steps can be found here.
- House Financial Services Committee Chairwoman releases early April hearing schedule. HFSC Chairwoman Waters published the Committee’s calendar of hearings for the first two week of April, three of which will focus on housing. One of the hearings, entitled “The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing,” will be with the full committee. The other hearings, one entitled “The Affordable Housing Crisis in Rural America: Assessing the Federal Response” and another entitled “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining,” will be with the Subcommittee on Housing, Community Development and Insurance and Subcommittee on Consumer Protection and Financial Institutions, respectively.
- FHA tightens underwriting standards on government-backed mortgages. In an about-face for a 2016 decision, the FHA has decided to tighten its underwriting and lending standards due to concerns that it is allowing too many risky loans to be insured. The FHA has observed extensive risk layering in recent years and this action is intended to ensure the FHA’s financial stability for years to come. According to the Wall Street Journal, the FHA “told lenders this month it would begin flagging more loans as high risk. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to their incomes, will now go through a more rigorous manual underwriting process…” The FHA stated in its letter that the “announcement comes after Federal Housing Commissioner Montgomery publicly stated numerous times in recent months that FHA must seek the right balance between managing risk and fulfilling its mission of supporting sustainable homeownership.”
- Fannie and Freddie announce newly appointed CEOs. Both Fannie Mae and Freddie Mac have announced the appointments of their new CEOs following their individual six-month searches. Fannie Mae appointed as its CEO commercial mortgage executive Hugh Frater, who joined Fannie’s board of directors in 2016 and served as interim CEO for several months after Tim Mayopoulos stepped down in October 2018. Meanwhile, Freddie Mac’s board of directors named its current president David Brickman as its new CEO, succeeding Donald Layton, who will retire in July. Brickman was promoted to president in September 2018 and has been with Freddie Mac since 1999.
Newsletter: February 2019
As the 116th Congress settles in, there has already been a lot of housing finance activity. Yesterday, the Senate Banking Committee (SBC) held a hearing on the nomination of Mark Calabria to head the Federal Housing Finance Agency (FHFA); while on Wednesday the House Financial Services Committee (HFSC) held a hearing on housing challenges, most notably homelessness. Recently, the chairs of both of these committees each outlined their priorities for housing finance reform. The FHFA also decided to no longer defend the constitutionality of its structure in court, amid an ongoing lawsuit filed by Fannie Mae and Freddie Mac (the “GSEs”) shareholders. Finally, as this is our first Roundup in 2019, we highlight that at the end of 2018, USMI President Lindsey Johnson testified along with other trade association and nonprofit executives before the HFSC on bipartisan housing finance proposals.
- Senate Banking holds confirmation hearing on FHFA Director nominee, Mark Calabria. On February 14, the SBC held a hearing on Mark Calabria’s nomination to serve as FHFA Director. At the hearing, Dr. Calabria expressed his intent to make the FHFA a “world class regulator” and promote a “well capitalized, strong system that preserves the 30-year mortgage and does provide access to affordable housing.” While he acknowledged that the FHFA can take certain actions to strengthen the GSEs, Dr. Calabria stressed that fundamental changes to the housing finance system must be done by Congress. During exchanges with members of the Committee, Dr. Calabria stated his support for moving away from a system that privatizes gains while socializing losses and explained that the ultimate goal should be a framework with sufficient capital and regulation that allows the GSEs to facilitate affordable housing for creditworthy borrowers. USMI released a statement on Dr. Calabria’s nomination, which can be found here.
- Senate Banking Chairman Crapo releases GSE reform outline. SBC Chairman Mike Crapo’s (R-ID) housing reform outline serves as a blueprint for comprehensive bipartisan reform efforts. It builds off of other proposals that put into place “multiple private guarantors” to guarantee the timely repayment of principal and interest to investors of eligible mortgages that are securitized through a platform operated by Ginnie Mae. The outline also requires, among other things, that the FHFA establish a capital requirement for all approved guarantors and require that all private guarantors engage in credit risk transfer. In a statement, USMI noted that “the reform plan covers many areas and [USMI] is particularly pleased that Chairman Crapo recognizes the importance and value of private mortgage insurance in enabling access to low down payment conventional mortgages while protecting taxpayers at least to the levels that they are protected today.”
- House Financial Services holds hearing on housing challenges. On February 13, the HFSC held a hearing that examined housing challenges in rural communities, including homelessness, rental housing, and homeownership, as well as legislative proposals to address aspects of these issues. As Chairwoman Maxine Waters (D-CA) noted, the hearing marked the “very first time that the full committee has convened a hearing focused entirely on homelessness” and discussed a bill that she introduced last congress that would allocate more than $13 billion over five years to programs to prevent homelessness. Chairwoman Waters is expected to reintroduce the bill this Congress. This will be a priority for the HFSC in the 116th Congress and Chairwoman Waters emphasized the need for “proactive solutions to ensure that every American has a safe, affordable place to call home.”
- House Financial Services Chairwoman Waters releases housing finance reform priorities. Chairwoman Waters similarly outlined her agenda for housing reform, which seeks to address the longtime conservatorship of the GSEs. Notably, she highlighted the importance of private mortgage insurance (MI) in any future reformed system, stating that one of her main priorities is to ensure “sufficient private capital is in place to protect taxpayers.” The list of principles also includes requiring transparency to ensure a level playing field for all financial institutions and maintaining access for all qualified borrowers that can sustain homeownership. HFSC Ranking Member Patrick McHenry (R-NC) sent a letter to Waters requesting she convene hearings in critical areas including on “government-sponsored enterprises and the role of the federal government in mortgage finance to explore paths to ending the government conservatorship of Fannie Maeand Freddie Mac” and the “continued oversight of the Financial Accounting Standards Board (FASB) and its Current Expected Credit Loss (CECL) Accounting Standard.”
- Government changes course on question of FHFA constitutionality. Recently, the FHFA filed a supplemental brief with the S. Court of Appeals for the Fifth Circuit stating that it will no longer defend the constitutionality of the FHFA’s single-director leadership structure in court. This ruling comes as the result of a lawsuit brought by Fannie Mae and Freddie Mac shareholders who have challenged the structure of the FHFA and the so-called “Third Amendment Sweep” by the Treasury Department. In July 2018, the federal appeals court reversed a previous court’s decision and agreed with shareholders that the FHFA’s structure was unconstitutional.
- USMI’s President testifies before Congress. At the end of December, Lindsey Johnson testified before the HFSC in a hearing entitled “A Legislative Proposal to Provide for a Sustainable Housing Finance System: The Bipartisan Housing Finance Reform Act of 2018;” a bill introduced by former HFSC Chairman Jeb Hensarling (R-TX), and Reps. John Delaney (D-MD) and Jim Himes (D-CT). USMI’s testimony addressed several important housing finance topics and discussed the role private MI can play in a reformed housing finance system, specifically in enabling homeownership while protecting taxpayers and the government from mortgage credit risk. She also highlighted key improvements to the industry that make it more resilient going forward. Specific to the draft legislation, Johnson provided several observations including that private MI is compatible with most proposals for reform because it is done at the loan level, and therefore the credit protection travels with the loan from the first day it is originated whether the loan is placed onto a lenders’ balance sheet, sold to an investor, or sold into a securitization pool. USMI’s testimony also provided several recommendations for the draft legislation, chief among them that any proposal should rely on loan level credit enhancement done by entities that can manage mortgage credit risk through all market cycles. During the hearing, Rep. Andy Barr (R-KY) touted the value of MI stating: “I certainly agree that we need more PMI and we need more credit risk transfers, and the more private capital that we can get in here, the better. Even if we do need a federal guaranty, let’s make sure that private capital has a robust first lost position.” The full list of witnesses and their testimonies can be found here.
Newsletter: August 2018
It’s been an action-packed summer for housing finance. The Washington Post reported on down payments being the chief hurdle for homebuyers across the country, citing USMI’s recent report on private mortgage insurance’s role in homeownership. There have also been substantive conversations about Fannie Mae and Freddie Mac’s (the GSEs) footprint and future. American Enterprise Institute (AEI) held a conference on the GSEs’ market activities, while Politico published an in-depth article on their market expansion. U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell also testified before Congress and both fielded questions on GSE-related matters. These GSE-related developments come as Fannie Mae CEO Timothy Mayopoulos announced his retirement by year’s end and, as National Mortgage News reported, when stakeholders and influencers are keenly focused on the Administration’s pick for the next Federal Housing Finance Agency (FHFA) Director. In other news, the U.S. Senate held a nomination hearing for Michael Bright to become President of Ginnie Mae, and Federal Housing Administration (FHA) Commissioner Brian Montgomery discussed his priorities.
- The Washington Post reports on the benefits of private mortgage insurance. Last week, The Washington Post featured an article focused on the difficulty for many Americans to save a 20 percent down payment to buy a home, and how private mortgage insurance (PMI) can help. In the piece, the author writes about the long wait time it can take Virginia, Maryland, and DC borrowers to save 20 percent down for a home, and cites USMI’s recently released state report. The article also highlights that in 2017, 56% of purchase loans with PMI went to first-time homebuyers.
- AEI hosts discussion on GSE mission creep. AEI hosted an event that discussed the GSEs’ footprint in the housing finance system and their history of mission creep into the primary market. Panelists at the event, which included an array of respected housing finance experts, cited examples of direct-to-consumer product marketing, lines of credit to non-bank servicers, dramatic expansions in the multifamily market, and opaque pilots that directly compete with traditional forms of loan-level credit enhancement. Panelists unanimously agreed that housing finance reform is necessary and it’s inappropriate for the GSEs to expand their footprint and market power while in conservatorship. Key observations include:
- Michael Fratantoni (Mortgage Bankers Association): “There is constant concern that [the GSEs] are stretching beyond their defined role in the marketplace… In this conventional conforming there should be a bright line between what primary market entities do and what secondary market entities – like Fannie and Freddie – do.”
- Michael Stegman (Milken Institute): “The lack of transparency in pricing, capital, and cross-subsidy have certainly complicated the conversation around housing finance reform and I would agree that we need a whole lot more transparency.”
- Ed DeMarco (Housing Policy Council) referenced a February 2010 letter to Congress in which he stated: “After considering the statutory requirement and goals of conservatorship, I have concluded that permitting the Enterprises to engage in new products is inconsistent with the goals of conservatorship… In short, the Enterprises will be limited to continuing their existing core business activities and taking actions necessary to advance the goals of conservatorship.”
- Politico reports on the GSEs’ market expansion. Earlier this week Politico featured an article that includes in-depth analysis of the Enterprises “quietly expanding their activities to fortify themselves against any efforts to rein them in,” and features observations from key housing experts. The article notes that recent activities and pilots have drawn scrutiny from members of Congress, with Rep. French Hill (R-AR) expressing concern about the GSEs’ mission creep to Treasury Secretary Steven Mnuchin, stating “The GSEs’ attempt to obtain expanded powers [is intended] to put them in an even more powerful position as reform proposals are considered by Congress.”
- S. Treasury Secretary Steven Mnuchin and Fed Chair Jerome Powell call for GSE reform. Treasury Secretary Steven Mnuchin testified before the House Financial Services Committee. During the hearing, Mnuchin stated the country needs GSE reform, saying it is “something that I am determined, in the next Congress, should be a major focus of ours — hopefully on a bipartisan basis. But we can’t just leave these things sitting the way they are as they have been.” Mnuchin also responded to a question from Congressman French Hill (R-AR) about the GSEs focusing on their core mission of serving secondary mortgage market homeowners and not competing with the private sector, saying: “…I think they should stay to their core business.” Fed Chair Jerome Powell testified separately before the House Financial Services Committee and Senate Banking Committee. He stated that housing finance reform remains the most significant unfinished business from the financial crisis. Specifically, Powell said, “It is really important for the longer run that we get the housing finance system off the federal government’s balance sheet and, using market forces and some of the things that are already in place, carry forward with some kind of reform.” Powell added it “continues to be a good time to move forward on [housing finance reform] … It is unsustainable to effectively have the U.S. housing finance system on the government’s books for the long run and it is not healthy.” Powell has previously called for moving to a housing finance system that relies even more on private capital to stand between housing credit risk and taxpayers. These comments by Sec. Mnuchin and Chairman Powell come just as longtime Fannie Mae executive Timothy Mayopoulos — who has served as the GSE’s CEO since April 2012 — announced his retirement effective end of 2018.
- Senate holds nomination hearing on Michael Bright to be Ginnie Mae President. The Senate Committee on Banking, Housing, and Urban Affairs held a nomination hearing on Michael Bright, who was nominated by President Donald Trump in May 2018 to become the next President of Ginnie Mae. During the hearing, Bright was asked about a 2016 paper he co-wrote on housing finance reform, which proposed placing the GSEs in receivership and establishing Ginnie Mae as a standalone entity separate from the Department of Housing and Urban Development (HUD). Bright said in the hearing, however, that he does not intend to advance those proposals as President of Ginnie Mae. It was also noted in the hearing that Bright helped write 2013 legislation to reform the GSEs as a former aide to Sen. Bob Corker (R-TN). During discussion about his past work, Bright said “aspects of conservatorship have been more durable” than originally thought at the time the 2013 bill was drafted.
- FHA Commissioner Brian Montgomery prioritizes technology upgrades as part of FHA reform. FHA Commissioner Brian Montgomery said that he wants to make sure FHA is around for “generations to come” and described the agency as being in “fix-it mode.” Commissioner Montgomery is specifically focused on prioritizing technology upgrades to replace mainframes currently in use at HUD and the FHA. According to April 2018 testimony from Dana Wade, General Deputy Assistant Secretary of FHA, “there were 73 outages of FHA’s origination systems during 2017, with durations lasting as long as five days.” There is universal agreement among housing finance stakeholders that the FHA’s 40+-year-old mainframe system is in dire need of updating and that the agency’s continued use and reliance on an obsolete programing language creates significant taxpayer risk.
- National Mortgage News lists potential new FHFA Directors. Yesterday the mortgage news outlet released an article that puts forth seven possible contenders to run the FHFA after current Director Mel Watt’s term expires in January 2019. The list of potential successors includes federal policymakers and respected housing finance experts including Adolfo Marzol, Rep. Jeb Hensarling, Mark Calabria, Michael Bright, Craig Phillips, Ed DeMarco, and Phillip Swagel. As the article notes, the Administration’s selection of the next FHFA Director will have significant implications for the GSEs, including what reforms might be pursued and achieved during the Trump Administration, as well as the broader housing finance market. The term of current FHFA Director Mel Watt ends January 6, 2019.
Newsletter: June 2018
It’s a good day to be a Washington Capitals fan! #ALLCAPS #ROCKTHERED! As summer heats up, so do several issues and developments in the housing industry. This week USMI released a new report on how private mortgage insurance (MI) has helped nearly 30 million homeowners nationwide for more than 60 years. In addition, the Federal Housing Finance Agency (FHFA) received a number of comment letters on its Notice of Regulatory Review process, including from USMI and the Mortgage Bankers Association (MBA), among others. Housing has also been a big topic in Congress lately as the U.S. Senate voted to confirm Brian Montgomery as the new Federal Housing Administration (FHA) Commissioner, and the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Fannie Mae and Freddie Mac’s (the GSEs) 10 years of conservatorship. And last but certainly not least, June is National Homeownership Month and we recognize the National Fair Housing Alliance, which will host its annual conference next week that celebrates the 50th Anniversary of the Fair Housing Act.
- USMI releases new report on private MI’s role in homeownership nationwide. USMI released a national report on the role of private MI in all 50 states and the District of Columbia. The report found that nearly 30 million homeowners have been served by MI for more than 60 years, and breaks down low down payment mortgage lending with MI in all 50 states. The report also underscores the historic importance of MI, how MI has helped promote homebuying in the U.S. especially with first-time buyers, and the protections that MI provides to American taxpayers and the federal government. The complete report on MI in the U.S. is available here. All 50 states fact sheets, plus data for the District of Columbia, are available here.
- Trades, including USMI and MBA, submit comment letters on FHFA Notice of Regulatory Review. This week, USMI submitted a comment letter to the FHFA on its Notice of Regulatory Review as part of the agency’s five-year Regulatory Review Plan, which identifies agency rules that should be changed or modified. In its letter, USMI suggests that FHFA should reassess its “Prior Approval for Enterprise Products” interim final rule for the GSEs, because though the regulation establishes a process for the GSEs to obtain prior approval from the FHFA for new products—and provide prior notice to the FHFA for new activities—the regulation is “unused [since its implementation in 2009] and apparently not fit for purpose.” USMI argues that “new activities and products have the potential to significantly impact many stakeholders in the housing finance ecosystem—GSEs, lenders, private mortgage insurers, borrowers, and the American taxpayer” and therefore “stakeholders should not have to rely on mechanisms that sidestep the Administrative Procedure Act such as ‘requests for input’ to offer feedback on new activities and programs proposed by the GSEs.” Further, USMI notes that since becoming conservator of the GSEs in 2008, FHFA has not addressed the interaction between its regulatory and conservatorship authorities. For these reasons, USMI urges FHFA to “withdraw the Regulation and resubmit a new proposed rule for a formal notice and comment period with additional clarity on the FHFA’s role and authority as conservator and regulator of the GSEs, as well as a workable approach for assessing new activities and products.”As reported by Inside Mortgage Finance (subscription), MBA also submitted a comment letter urging FHFA to require public disclosure on “any notice” of new business activities being planned by the GSEs. Among other things, MBA asks that FHFA specify the factors and metrics it will consider when determining whether a new activity constitutes as a new product or new activity, and specifically calls on FHFA to modify the manner in which it addresses new activities characterized as “pilots.”
- Brian Montgomery confirmed as new FHA Commissioner. Brian Montgomery, a respected housing expert and seasoned mortgage finance professional, was confirmed in a widely bipartisan vote to serve as President Trump’s FHA Commissioner. Commissioner Montgomery, who previously served as FHA Commissioner in the George W. Bush administration, will be responsible for overseeing the more than $1 trillion of insurance in force at the FHA as well as addressing some of the challenges facing the FHA going forward.Upon Commissioner Montgomery’s confirmation, USMI President Lindsey Johnson released a statement praising the Senate confirmation of the new FHA Commissioner: “USMI applauds the Senate for its bipartisan vote to confirm Brian Montgomery to serve as FHA Commissioner… We look forward to working closely and collaboratively with Commissioner Montgomery to create a more coordinated, consistent, and transparent housing system – a system that can expand private capital’s role in shouldering more risk in front of taxpayers in the housing market.”
- Senate holds hearing on “Ten Years of Conservatorship” of the GSEs. The Senate Committee on Banking, Housing, and Urban Affairs recently held a hearing entitled “Ten Years of Conservatorship: The Status of the Housing Finance System,” in which FHFA Director Mel Watt testified on the GSEs’ activities over the last ten years under federal control. During his testimony, Director Watt said that FHFA has “worked with the Enterprises to develop a Conservator Capital Framework [CCF] that establishes aligned capital guidelines for both Enterprises across different mortgage loan and asset categories” and that FHFA uses the CCF to assess GSE guaranty fees, activities, and operations. Director Watt suggested that, as regulator, he believes it is important for FHFA to “articulate a view on prudential capital requirements for the Enterprises.” Director Watt suggested that FHFA will release for public comment a proposed rule for post-conservatorship risk-based capital and minimum leverage capital requirements.During the question and answer portion of the hearing, Senator Bob Corker (R-TN) focused on the CCF and asked if Director Watt agreed that “capital for these institutions should be fairly close at least to some of the larger banking institutions.” Senator Corker also spoke to the GSEs’ footprint, suggesting that “there are some areas where it [the footprint] has expanded… We have a situation now where Freddie Mac is now lending, they have become a lender their servicers.” Senator Corker noted “some of the pilot programs over the last five years have actually expanded the role of the two GSEs,” specifically pointing to Fannie Mae’s recent increase in debt-to-income ratios and its “financing Airbnb” as examples of expansions of the GSEs in the marketplace. Senator Corker said, “there has actually been an expansion of mission, and so while we have gotten the portfolios down it appears that instead of trying to decrease the footprint over time, over the last five years we are beginning to, especially in the last couple years, expand the mission.”Senator Pat Toomey (R-PA) asked Director Watt about the recent release of the IMAGIN product into the market place, and specifically “why there was not maybe even a traditional rulemaking process or a period of public comment to consider this.” Senator Toomey also questioned the recent financing of mortgage service companies, noting that “this looks like new kinds of activities, new practices, where we have not seen an explanation, an opportunity to comment and to get public input on.” Director Watt responded that “if I took public comment on every pilot that we did, we would never do any.” Senator Toomey ended his line of questions by asking Director Watt to respond in writing with an explanation for the rationale behind the program.
- National Fair Housing Alliance celebrates 50th Anniversary of Fair Housing Act. The National Fair Housing Alliance will hold its annual conference next week celebrating the 50th Anniversary of the Fair Housing Act. The conference, titled “The Fair Housing Act at 50: Making Every Neighborhood a Place of Opportunity” will be held June 9 through 12 and aims to bring together thought leaders and experts on civil and human rights, housing, lending, insurance, education, transportation, health, environmental justice, and community development to examine achievements made under the Fair Housing Act. The conference will also observe the current barriers to fair housing and inclusion, and what is on the horizon in the coming years. More information about the events commemorating the 50th Anniversary of the Fair Housing Act can be found here.
Newsletter: December 2017
As 2017 wraps up, there continue to be many developments in the housing finance system. On Capitol Hill, recent hearings before the House Financial Services Committee’s (HFSC) Subcommittee on Housing and Insurance featured top experts tackling the most pressing issues in the housing market. USMI Chairman Patrick Sinks (who is also CEO of Mortgage Guaranty Insurance Corp.) testified to discuss the importance of increasing private capital in the housing finance system as Congress considers reform proposals. Ginnie Mae Acting President Michael Bright also testified and touted the value of private capital in the housing market, as well as the value of front-end risk sharing, such as with private mortgage insurance (MI). Separately, HFSC Chairman Jeb Hensarling expressed support for moving forward with bipartisan housing reform. In another notable development on the Hill, the U.S. Senate Banking Committee gave its bipartisan approval for Brian Montgomery to be President Trump’s Federal Housing Administration (FHA) Commissioner. His nomination now goes to the full Senate for consideration. Another significant FHA development is the announcement that its loan limit would increase by roughly 7 percent. America’s Homeowner Alliance Managing Director Tino Diaz wrote a thoughtful op-ed about the FHA’s role in the housing finance system. Diaz’s op-ed highlights the need for the FHA to keep its important risk safeguards in place despite Congressional legislation that seeks to weaken these protections.
- USMI Chairman Patrick Sinks Testifies Before Congress in Housing Finance Reform Hearing—Part IV. This week, USMI Chairman and MGIC CEO Patrick Sinks testified on behalf of USMI in front of the HFSC Subcommittee on Housing and Insurance in a hearing entitled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform, Part IV.” Sinks highlighted the role that private MI has played in the housing finance system, and discussed the MI industry’s performance through the Great Recession, the key improvements made by the industry that make it more resilient going forward, and the industry’s ability to play a larger role in a reformed system. In addition, Sinks proposed specific principles for housing finance reform, lessons that should be applied to all market participants, and recommendations to increase the role of private capital in the housing finance system to further protect taxpayers and ensure borrowers’ continued access to affordable and prudent low-down payment mortgage credit.
In a statement, USMI President and Executive Director Lindsey Johnson said: “Private MI has been an invaluable piece of the housing finance system for a long time, decades longer than any other low down payment model being tested. Fortunately, our industry is strong and ready to shoulder an even greater responsibility in the system moving forward. We appreciate Congress’ work to address long overdue reforms to the housing finance system and USMI members look forward to continuing and enhancing the credit risk protection MI provides to shield taxpayers from mortgage credit risk and promote homeownership across the country.”
- House and Senate Seem Poised to Advance Bipartisan Housing Finance Reform. Speaking at a housing finance reform event hosted by the National Association of Realtors (NAR) and S&P, HFSC Chairman Jeb Hensarling (R-TX) expressed support for moving ahead with bipartisan housing finance reform. Alluding to the likely direction that Republicans may pursue for reform, Chairman Hensarling touted the Ginnie Mae model, which builds off proposals promoted by former Ginnie Mae President Ted Tozer, former Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, and current Ginnie Mae Acting President Michael Bright.Hensarling specifically said: “I don’t want a government guarantee, I don’t think we need a government affordable housing program but in surveying the political landscape I know they will exist in any bipartisan effort.” Demonstrating bipartisan support for elements of housing finance reform, Rep. Dan Kildee (D-MI) said, “This is an area of policy where I think the divisions that manifest on this committee might be able to be overcome and I want to encourage the leadership of this subcommittee to continue on that path; as long as we know the direction we are going I think there is enough common ground for us to try to knit together some policy that we can all work together on… in a bipartisan fashion.”
- Acting Ginnie Mae President Michael Bright Touts Private MI and Increased Risk Sharing. Ginnie Mae’s Acting President Michael Bright testified before the HFSC in a hearing entitled “Sustainable Housing Finance: The Role of Ginnie Mae in the Housing Finance System.” During his testimony, Bright discussed potential Ginnie Mae reforms, the entity’s financial portfolio, as well as VA loan refinancing. Importantly, Bright was asked several questions by Rep. Ed Royce (R-CA) on the role of private MI in the housing finance system.Bright acknowledged that credit risk transfers at Fannie Mae and Freddie Mac (the “GSEs”) are bringing more private capital into the housing finance system and agreed with Rep. Royce that Ginnie Mae and the GSEs have the legal authority to do more front-end risk sharing. Bright also said that he believes credit risk transfers are the biggest success story in the secondary mortgage market in the last five years, and that anything that can be done to lock in those gains is smart policy.
- FHA Commissioner Nominee Brian Montgomery Approved by Senate Banking Committee. The U.S. Senate Banking Committee approved Brian Montgomery to be FHA Commissioner in a bipartisan vote of 18 to 5. Montgomery, a longtime housing finance expert who previously served as FHA Commissioner under President George W. Bush, will now be considered by the full Senate for a confirmation vote. Today, 46 housing organizations sent a letter to House and Senate leaders urging that the Senate bring Montgomery’s nomination to the Senate Floor for a vote as soon as possible.USMI has specifically applauded Montgomery’s views that private capital should play a leading role in guaranteeing low down payment mortgage credit risk to protect U.S. taxpayers and the federal government, as well as his previous statement that the FHA “should never take the place of the private sector first-loss solution provided by private mortgage insurers.”
- America’s Homeowner Alliance Publishes Op-Ed on Need to Retain FHA Risk Safeguards. AHA Managing Director Tino Diaz recently published an op-ed calling for the preservation of FHA risk safeguards in the housing finance system. In his op-ed, Diaz highlights the critical role the FHA has played serving underserved borrowers in the housing finance system, but calls attention to recent misguided efforts to change the FHA’s successful risk protections. Diaz specifically discusses Congressional legislation introduced that seeks to eliminate the FHA’s life of loan mortgage insurance premium (MIP) policy, which is critical to protecting U.S. taxpayers and the federal government from risky FHA loans, all of which are 100 percent government-backed.The op-ed comes the same week the FHA announced that its loan limits will increase in nearly all zip codes across the country—increasing roughly seven percent to $679,650 in many high-cost areas. Diaz’s op-ed takes on even greater importance in light of the FHA’s recent annual report to Congress, which showed the fiscal health of the FHA’s Mutual Mortgage Insurance Fund in a weaker financial position than it was last year and woefully undercapitalized compared to its private sector counterparts. As such, any changes to the FHA’s life of loan policy or reductions to its MIP collection would expose taxpayers and the government to increased mortgage credit risk.
Newsletter: November 2017
As the Thanksgiving holiday nears, there has been a cornucopia of news in housing finance. Here is a roundup of recent news to ensure you stay up-to-date on the latest happenings. In a yearly ritual like the Macy’s Day Parade, the Federal Housing Administration (FHA) released its annual report to Congress highlighting the health of its Mutual Mortgage Insurance Fund (MMIF). In the days leading up to the release of the report, the Heritage Foundation wrote a blog post in opposition to terminating the FHA’s life of loan policy in collecting mortgage insurance premiums (MIP), which a number of groups have sought in recent months. Tax reform has gobbled up much of the news over the past few weeks, and this week the House of Representatives passed its tax reform bill. Finally, just like the abundant feasts of Thanksgiving, the House Financial Services Committee’s (HFSC) Housing and Insurance Subcommittee held Part III of its “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform” hearing series).
- FHA Releases 2017 Annual Report to Congress. The FHA released its annual report to Congress on the health of its MMIF for 2017 – an important measurement of the FHA’s fiscal strength in the housing finance market. According to the report, the MMIF stands at 2.09 percent, down from 2.35 percent last year and just slightly above the statutory requirement of 2 percent. The report also found that the FHA insures more than $1.2 trillion in mortgage credit risk – an increase from its 2016 annual report. DSNews reported that U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson is ensuring the public that HUD is working to better the fiscal health of the FHA. Secretary Carson said, “The fiscal health of FHA demands our constant attention and vigilance to ensure we can continue providing sustainable homeownership opportunities to working families without exposing taxpayers to excessive risk. Our duty is clear—we must make certain FHA remains financially viable so future generations can build wealth and climb the economic ladder of success.” In a statement on the FHA’s annual report to Congress, USMI President and Executive Director Lindsey Johnson said: “The FHA has taken important steps in recent years to improve its financial stability after requiring a $1.7 billion government bailout in 2013 when the agency did not have the necessary capital to cover losses, though more needs to be done. With more than $1.2 trillion in mortgage credit risk, the FHA must enhance its financial strength to continue to serve the borrowers who need it the most… Now is the time for the FHA to refocus on its core mission, scaling back from the oversized role it played during the recession so that it can return to serving low-to-moderate income individuals who need the FHA’s 100-percent government backed loans the most.”
- House of Representatives Passes Tax Reform Legislation. Yesterday, the House of Representatives voted 227 to 205 to pass R. 1, the “Tax Cuts and Jobs Act.” Among many other provisions included in the tax plan, the bill reduces the mortgage interest deduction from $1 million to $500,000 and caps the deduction for property taxes at $10,000. The U.S. Senate will soon vote on its own tax proposal and, if it passes, will go to conference with the House to negotiate a final bill through reconciliation. To read more about USMI’s views on the House’s tax reform bill, please click here.
- Housing and Insurance Subcommittee Holds Housing Finance Reform Hearing—Part III. A HFSC subcommittee received testimony from representatives of the Milken Institute, American Enterprise Institute (AEI), Moody’s Analytics, Cardiff Consulting Services, and the Urban Institute for housing finance reform. Importantly, former Ginnie Mae President and current Milken Institute Senior Fellow Ted Tozer called for a balanced deployment of government and private capital in support of a fairer and more efficient housing finance system, and also called for the overall reduction of the government footprint as more private capital re-enters the system at different points in the primary and secondary mortgage markets. Tozer’s remarks echo what other housing experts have said about private capital in the housing finance system, which reduces mortgage credit risk to U.S. taxpayers and the federal government.
- Heritage Foundation Opposes Terminating FHA Life of Loan Premium Coverage. In a recent article, Heritage Foundation scholars John Ligon and Norbert Michel spoke out against terminating FHA MIP, saying that “these changes would be unfair to federal taxpayers that subsidize the cost of the Federal Housing Administration’s insurance program.” The authors specifically mention a recent bill introduced in the House of Representatives that would eliminate the FHA’s current life of loan policy. The authors also urged neither Congress nor the FHA to make any policy changes that would weaken the agency’s ability to cover insurance losses. USMI also opposes reducing FHA’s premium or cancelling FHA’s premiums collected for the life of the loan, because the 100-percent government-backed FHA will continue to hold the same amount of mortgage credit risk while collecting less in insurance premiums, thereby putting taxpayers and the federal government at increased risk. In fact, according to the findings in the FHA’s 2017 annual report to Congress, if the FHA had reduced insurance premiums as planned in January, the MMIF would be at 1.76 percent and undercapitalized.
Newsletter: June 1027
Here is a roundup of recent news in the housing finance industry. USMI released a paper assessing housing finance reform proposals announced by housing institutions and organizations, the Senate Banking Committee held a hearing on housing finance reform, Genworth Financial introduced its first-ever First-Time Homebuyer Market Report, the Federal Housing Finance Agency (FHFA) submitted its 2016 annual report to Congress, and American Action Forum (AAF) commented on Fannie Mae and Freddie Mac’s (the GSEs) increasingly risky credit portfolios while calling for greater usage of private mortgage insurance (MI).
- USMI Releases Policy Paper Assessing Housing Finance Reform Proposals. USMI released a paper that assesses a number of reform proposals for the housing finance system. This paper analyzes the various reform proposals put forth by widely respected institutions and organizations through the lens of USMI’s housing finance reform principles, with attention to the role of private capital to protect against taxpayer risk exposure in the proposed new systems.
- Senate Banking Committee Holds Hearing on Housing Finance Reform. Edward DeMarco (President, Housing Policy Council), Dave Stevens (President, Mortgage Bankers Association), and Michael Calhoun (President, Center for Responsible Lending) testified before the Senate Banking Committee on principles for housing finance reform and specific proposals, including the importance of more private capital standing in front of taxpayers’ risk exposure.
- Genworth Introduces First-Time Homebuyer Market Report. Genworth introduced its First-Time Homebuyer Market Report – the first economic series focused on first-time homebuyer market size. The report provides data spanning two housing cycles over the past 24 years that will make the first-time homebuyer market more visible to housing industry participants and policymakers. A factsheet of the report can be found here.
- FHFA Submits 2016 Annual Report to Congress. FHFA submitted its annual Report to Congress for 2016, which describes the actions undertaken by the agency to carry out its statutory responsibilities. The report summarizes the findings of FHFA’s 2016 examinations of the GSEs as well as FHFA’s actions as conservator of the GSEs during 2016. The report also describes FHFA’s regulatory guidance, research, and publications issued during the year.
- AAF Comments on GSEs’ Increasingly Risky Credit Transfers. In a post on its website, AAF commented on the current status of FHFA and the GSEs, which are retaining risky assets and transferring very little credit risk while remaining dangerously undercapitalized. AAF warns that FHFA and the GSEs’ actions will most likely lead to another taxpayer bailout of the entities. AAF notes that while GSE reform remains a top priority to fix the housing finance system, private MI can be more extensively used in credit risk transfer to de-risk the GSEs’ portfolios, which in turn will protect US taxpayers and the federal government.
Newsletter: June 2017
Here is a roundup of recent news in the housing finance industry. The Trump administration released its 2018 federal budget proposal for the U.S. Department of Housing and Urban Development (HUD), Federal Housing Finance Agency (FHFA) Director Mel Watt and Treasury Secretary Steven Mnuchin testified before the U.S. Senate on potential GSE reform, USMI and numerous other housing industry groups voiced their support for the nomination of Pam Patenaude to serve as Deputy Secretary of HUD, and several third party groups released white papers on access to affordable mortgage credit and housing finance reform.
- Trump Administration Releases 2018 Federal Budget Proposal for HUD. The Trump administration released its 2018 federal budget proposal for HUD, which includes $6.2 billion – or 13.2 percent – in cuts to the agency. The cuts would be implemented through rental assistance reforms, the elimination of funding for certain programs, and through the streamlining of internal operations. The budget includes $160 million for the Federal Housing Administration (FHA) to improve risk management and program support processes, and would also provide $30 million towards modernizing the FHA’s system and updating its programming language.
- FHFA Director Watt Calls for GSE Reform. In testimony before the Senate Committee on Banking, Housing and Urban Affairs, FHFA Director Mel Watt called for Fannie Mae and Freddie Mac (the “GSEs”) to be taken out of government conservatorship as soon as possible. Watt warned of future potential GSE draws on the line of credit at Treasury as the GSEs currently have a very limited capital buffer and are scheduled to go to zero capital in 2018. Watt expressly noted that Congress should be responsible for achieving housing finance reform, not the FHFA.
- Treasury Secretary Mnuchin Testifies in Senate. Treasury Secretary Steven Mnuchin testified before the Senate Committee on Banking, Housing and Urban Affairs where he too was questioned on the topic of housing finance reform. Mnuchin said that GSE reform would be a priority in the second half of the year for the Trump administration and noted that he and the administration would work with Congress on reform efforts. Notably, Mnuchin stated that he expects the GSEs to continue to pay dividends to the Treasury Department despite statements made the previous week by FHFA Director Watt, who said he might allow the GSEs to retain profits in order to build capital buffers against potential future losses.
- Housing Industry Groups Support Pam Patenaude’s Nomination to HUD. Numerous housing industry associations expressed their support for the Trump administration’s nomination of Pam Patenaude as Deputy Secretary of HUD, including Mortgage Bankers Association (MBA), National Association of Realtors (NAR), National Association of Home Builders (NAHB), and National Fair Housing Alliance (NFHA), among others. In a letter provided to Senate Banking Committee members last week, USMI similarly voiced its support for Patenaude’s nomination. USMI’s Chairman Patrick Sinks, President and CEO of MGIC, said of the nomination:“USMI encourages members of the Senate Banking Committee to approve Mrs. Patenaude’s nomination and to move it expeditiously to the Senate floor… Mrs. Patenaude understands the housing finance system and the need for a coordinated, consistent and transparent approach to federal housing policy across government channels. Her leadership on these important issues will ensure that Americans have greater access to mortgage finance credit for borrowers, while at the same time, increasing private capital in mortgage finance and reducing taxpayer risk exposure.”
- New GSE Reform Proposals Released by Third Party Groups. In the last week, several organizations interested in GSE matters released white papers on housing finance reform for policymakers and industry stakeholders to consider. These groups include the Bipartisan Policy Center, the Milken Institute, and Moelis & Co. LLC.