Tag: private mortgage insurance

Blog: Do the math: Homebuying now may save a lot

Posted on by dcadmin

It is a common misconception that a 20 percent down payment is required to buy a home. Advice to wait and save a large down payment is often based on the theory that the cost of mortgage insurance (MI), which is required when you buy with a smaller down payment, should be avoided. This may not be the best advice and is, in fact, not in line with market trends, considering 60 percent of homebuyers buy with a down payment of 6 percent or less, according to the National Association of Realtors.

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

How can buying now save you money later?

Consider you want to purchase a $235,000 home. A 5 percent down payment is $11,750 versus $47,000 in cash for 20 percent down. With a 740 credit score at today’s MI rates, your monthly MI payment would be about $110, which is added to your monthly mortgage payment until MI cancels. MI typically cancels after five years; therefore, you will only have this added cost for a short period of time versus waiting an average of 20 years to save for 20 percent.

With home price appreciation, today’s $235,000 home will likely cost more in the years ahead and this will also have an impact on the necessary down payment and length of time required to save for it. There are other variables in the equation too, such as interest rates. As federal rates rise, so too can the costs associated with financing a mortgage. The savings a borrower might calculate today could be altogether negated by waiting even a few more years. Another factor is that rents are on the rise across the nation, leading to a reduced capacity for many would-be homebuyers to save for larger down payments.

If you decide to buy today with a low down payment mortgage option, it is true that MI is an added cost on top of mortgage principal and interest, but keep in mind that it is temporary and goes away. Again, it typically lasts about five years. Private MI can be cancelled once a homeowner builds approximately 20 percent equity in the home through payments or appreciation and automatically terminates for most borrowers once he or she reaches 22 percent equity. And when MI is cancelled, the monthly bill goes down. Importantly, the insurance premiums on an FHA mortgage — the 100 percent taxpayer-backed government version of mortgage insurance — cannot be cancelled for the vast majority of borrowers with FHA mortgages.

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

Blog: How to lower your monthly mortgage payment

Posted on by Rhina Portillo

Owning your own home comes with many advantages, including escaping rising rents and the personal and financial stability associated with homeownership. Fortunately, millions of Americans, with less than 20 percent down, have been able to buy a home sooner thanks to mortgage insurance (MI). If you don’t put down 20 percent of the mortgage cost, you will likely be required to purchase MI, which enables low-down-payment borrowers to qualify for home financing from lenders.

While homeownership has many benefits and continues to be part of the American Dream, it is not without costs. Several surveys have found that the majority of first-time homebuyers — over 80 percent according to one study — put less than 20 percent down. For these borrowers, there is usually the added expense of MI, which may give some of these borrowers pause.

But there is good news: the monthly private mortgage insurance premiums do not last forever on most conventional loans. And when private MI (PMI) cancels, homeowners will have more cash in their pockets each month — money that is available for home improvements or other goals. It is important to understand, however, that not all MI is the same, and not all MI can be canceled.

There are numerous low-down-payment mortgage options available that include MI. The two most common are: (1) home loans backed 100 percent by the government through the Federal Housing Administration (FHA) that include both an upfront and annual mortgage insurance premium (MIP); and (2) conventional loans, which are typically backed at least in part by private sources of capital, such as private MI. The key difference is that one form can be canceled (PMI) while the other (FHA) typically cannot be canceled.

An FHA loan can be obtained with a down payment as low as 3.5 percent. However, be aware that you will typically have to pay a mortgage insurance premium (MIP) of 1.75 percent of the total loan amount at closing or have it financed into the mortgage. In addition to your regular monthly mortgage payments on your FHA loan, you will also pay a fixed monthly MIP fee for the life of the loan. This means you could pay hundreds of dollars extra every month — thousands over the life of the loan — until you pay off the entirety of the loan.

If you obtain a conventional loan with PMI, you can put as little as 3 percent down. Like an FHA loan, PMI fees are generally factored into your monthly mortgage payment. However, PMI can often be canceled once you have established 20 percent equity in the home and/or the principal balance of the mortgage is scheduled to reach 78 percent of the home’s original value. This means that the rest of your mortgage payments will not include any extra fees, so that your payments go down in time, saving you money each month. What you save in the long run can then be put toward expenses like home renovations, which can further increase your home’s value.

MI is a good thing because it bridges the divide between a low down payment and mortgage approval. But not all MI is created equal. If you want to buy a home but still save in the long run, PMI might be the right option for you. Check out lowdownpaymentfacts.org to learn more.

Report: Urban Institute Report Highlights Role Private Mortgage Insurers Have Played to Protect Taxpayers, Expand Access to Homeownership for 60 Years

Posted on by Rhina Portillo

For 60 years, private mortgage insurance (MI) has helped more than 25 million families become successful homeowners. To commemorate this milestone, the Urban Institute examined the industry’s history and the positive role MI has served for homebuyers and the mortgage finance system overall. Urban notes in its study, “[p]rivate mortgage insurers have played a crucial role over the past six decades enabling first-time homebuyers to gain access to high-[loan-to-value] conventional financing while reducing losses for the GSEs.” The report confirms that the presence of private mortgage insurance makes it easier for creditworthy borrowers with limited down payments to access conventional mortgage credit. This is the primary function of MI – to help borrowers qualify for home financing.

The report also focuses on the role MI plays to reduce taxpayers’ exposure to mortgage credit risk. MI insures the first-loss credit risk to the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, helping to reduce GSE losses, and therefore taxpayers’ losses, on defaulted mortgages. And historical experience and data show MI works. Urban found that GSE loans with MI consistently have lower loss severities than those without MI. In fact, for nearly 20 years, loans with MI have exhibited lower loss severity each origination year. The Urban analysis shows that “for 30-year fixed rate, full documentation, fully amortizing mortgages, the loss severity of loans with PMI is 40 percent lower than [loans] without.”

Loss Severity for GSE Loans with and without PMI, by Origination Year Groupings

Sources: Fannie Mae, Freddie Mac, and the Urban Institute.

Note: GSE = government-sponsored enterprise; PMI = private mortgage insurance. The GSE credit data are limited to 30-year fixed-rate, full documentation, fully amortizing mortgage loans. Adjustable-rate mortgages and Relief Refinance Mortgages are not included. Fannie Mae data include loans originated from the first quarter of 1999 (Q1 1999) to Q4 2015, with performance information on these loans through Q3 2016. Freddie Mac data include loans originated from Q1 1999 to Q3 2015, with performance information on these loans through Q1 2016.

 

This data, coupled with the more than $50 billion in claims our industry paid since the GSEs entered conservatorship—which represents over 97% of valid claims paid, underscores how MI provides significant first-loss protection for the government and taxpayers. By design, MI provides protection before the risk even reaches the GSEs’ balance sheets. As the government explores ways to further reduce mortgage credit risk while also ensuring Americans continue to have access to affordable home financing, the data shows private MI is an important solution.

The MI industry, like nearly all other industries in financial services, was tested like never before through the financial crisis. Urban’s report acknowledges the challenges the industry has overcome from the financial crisis and the opportunities ahead for the industry. Coming out of the crisis, the MI industry is even stronger with more robust underwriting standards, stronger capital positions, and improved risk management. Additionally, in the last two years, private mortgage insurers have materially increased their claims paying ability in both good and bad economic times due to new higher capital standards under the Private Mortgage Insurance Eligibility Requirements (PMIERs).

Urban notes that the industry “should be more resilient going forward” because of the important changes applied to the industry today – including the enhanced capital, operational, and risk standards ‒ and highlights the broad agreement among parties studying GSE reform for the need to reduce the government’s footprint and increase the role of private capital. These developments have helped strengthen the industry and new reforms can allow MI to take on an even greater role to continue protecting taxpayers and expanding access to homeownership for the next 60 years and beyond.

Statement: Requests to Reduce FHA Mortgage Insurance Premiums

Posted on by Rhina Portillo

USMI Logo 60th Anniversary

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USMI Statement on Requests to Reduce FHA Mortgage Insurance Premiums

WASHINGTON — Over the last couple of weeks, there have been requests, including from some trade organizations and Democratic members of Congress for the U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson to reinstate a cut scheduled under the Obama Administration to the Federal Housing Administration (FHA) mortgage insurance premiums (MIP). The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“Helping creditworthy homebuyers qualify for mortgage financing despite a low-down payment is good policy. It is precisely why conventional loans with private mortgage insurance (MI) and the government-backed FHA loans exist. However, reducing FHA premiums is neither necessary nor prudent at this time. Credit remains available for these borrowers in the conventional market, where the risk is backed by private capital, such as MI. A FHA premium reduction will only draw borrowers served in this market over to the FHA, where the risk is 100 percent backed by the government and taxpayers.

“The FHA has and continues to serve an important role in the housing finance system. While the financial health of the FHA has improved since the financial crisis, it is by no means in a position to have the fees it charges for the insurance it provides reduced. Taxpayers are currently exposed to more than $1 trillion in mortgage risk outstanding at the FHA. This would only increase if FHA premiums were reduced.

“Rather than reduce premiums, the FHA should continue to make the needed improvements to its financial health. Policymakers should also work to establish a more coordinated and transparent housing policy that will promote increased access to low down payment lending while at the same time decreasing the federal government’s role in housing, such as reducing or eliminating the GSEs’ loan level price adjustments (LLPAs)—a more effective and prudent means for improving access to mortgage finance credit. Further, we strongly urge against any change to FHA’s life of loan coverage. Unlike private MI, which is cancellable, FHA’s insurance coverage does not go away—thus, taxpayers are on the hook for FHA-insured mortgages for the entire life of the loan.

“Private capital can and should play a leading role in insuring low down payment mortgages so the government and taxpayers are protected from mortgage credit risk. Past FHA commissioners strongly agree with this sentiment. For over 60 years, private MI has been a time-tested and reliable way for Americans to become homeowners sooner—with more than 25 million borrowers helped to date. USMI looks forward to working with all interested parties in Congress and the housing market to ensure we create a housing finance system that protects taxpayers while also promoting homeownership throughout the country.”

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

Blog: A smarter way to buy a home

Posted on by dcadmin

Are you considering buying a home? With mortgage rates on the slow and steady incline, there may be no better time for a home purchase than now. Mortgage interest rates will likely continue to go up for the foreseeable future, according to recent data from the housing finance company Freddie Mac. Many housing experts and industry observers agree.

What does this mean?

If you are thinking about buying a home, it means don’t wait any longer. The overall cost of buying a home in the future will only increase compared to buying a home of the same value today. Furthermore, rising interest rates impact housing inventory, as sellers might not be as interested in moving if it means paying a higher rate on a new mortgage. As a result, the dream home you see today might not be available next year.

The 20 percent down myth

If you’ve put off buying your next home to save for the full 20 percent there is good news: you don’t need it. If you were unaware of this, you’re not alone. A recent survey found that among first-time homebuyers who obtained a mortgage, 80 percent made a down payment of less than 20 percent. While there are several low down payment mortgage options available, only one has a 60-year history of being a steadfast, smart way to get into a home: a conventional loan with private mortgage insurance (MI).

What is a conventional loan with MI?

A conventional loan is a mortgage from a lender that is not completely backed by the federal government. For qualified borrowers with a low down payment, private MI is required and typically paid monthly along with the mortgage payment. You can obtain this type of loan with as little as 3 percent down, though buying with a 5 percent down payment will result in a lower monthly payment.

There are other types of low down payment options that also include MI, such as the government-insured loans backed by the Federal Housing Administration (FHA). Unlike the premiums charged by FHA loans, private MI premiums can be cancelled once 20 percent equity in home value is reached, and with private MI there are no upfront costs added onto a borrower’s initial down payment like there are with an FHA loan. This means your monthly bill decreases and you have extra money to spend on your family, vacations, retirement and any other needs.

Don’t sit on the sidelines and miss out on your dream home. To learn more about mortgage insurance compared to other low down payment options, visit LowDownPaymentFacts.org.

Newsletter: April 2017

Posted on by Rhina Portillo

Here is a roundup of recent news in the housing finance industry. USMI’s Lindsey Johnson interviews USMI Board Chairman Patrick Sinks on the 60th anniversary of the private mortgage insurance (MI) industry. Additionally, a recent congressional bill aimed at promoting greater transparency at Fannie Mae and Freddie Mac (the GSEs) was passed by the House of Representatives, President Trump announced his nomination for Deputy Secretary of the Department of Housing and Urban Development (HUD), and the Mortgage Bankers Association (MBA) released a new report on reform recommendations for the GSEs and housing finance system.

  • Private Mortgage Insurance Industry Turns 60. This week, USMI published a Q&A between USMI President and Executive Director Lindsey Johnson and USMI Chairman and Mortgage Guaranty Insurance Corp. (MGIC) CEO Patrick Sinks. In their discussion, Johnson and Sinks discuss the past, present, and future of the MI industry, and how MI has helped people affordably become homeowners for 60 years.
  • House Bill Aims to Open GSE Records to FOIA. This week, the House of Representatives passed H.R. 1694, the Fannie and Freddie Open Records Act of 2017, by a unanimous vote. H.R. 1694, introduced by Rep. Jason Chaffetz (R-UT), would mandate Fannie Mae and Freddie Mac to accept and process Freedom of Information Act (FOIA) requests from the public, and release information to satisfy FOIA requests as long as they remain under federal conservatorship.
  • President Trump Announces Deputy Secretary of HUD Nomination. Today, President Trump announced the nomination of Pamela Patenaude to be Deputy Secretary of HUD. Patenaude is currently the President of the J. Ronald Terwilliger Foundation for America’s Families and previously served as Director of the Bipartisan Policy Center Housing Commission. USMI issued the following statement on Patenaude’s nomination:“Pam Patenaude is a strong choice to serve as Deputy Secretary for HUD. Throughout her career, she has been a proven leader on housing issues and will bring a wealth of knowledge and experience to the agency. USMI looks forward to working with Pam on the important issues facing the housing finance industry.”
  • MBA Releases New Report on Reform Recommendations for GSEs and Housing Finance System. This week, MBA released a report outlining its recommendations to reform the GSEs and the housing finance system. The report covers many areas such as the value of loan-level credit enhancement and the benefit of private MI, as well as promotes greater use of front-end credit risk sharing including through private MI. The report also recognizes the important functions of private market participants and reinforces that there should be a bright line between the functions of private market participants in the primary market and those of secondary market participants. In a statement on the report,  USMI President Lindsey Johnson said:“USMI is pleased to see MBA and other industry, trade and consumer groups provide ideas and proposals for how to reform the housing finance system and we look forward to continuing to work with MBA and others to promote reforms to the housing finance system to put more private capital in front of taxpayer risk and to create a more sustainable housing finance system that works for market participants, taxpayers and consumers. For 60 years, MI has provided effective credit risk protection for our nation’s mortgage finance system. This time-tested form of private capital should be the preferred method of absorbing credit loss in front of any government guaranty, helping to minimize taxpayer risk while ensuring mortgage credit remains accessible.”

Blog: Private Mortgage Insurance at 60 Years — Lindsey Johnson interviews USMI Board Chairman Pat Sinks

Posted on by Lindsey Johnson

By Lindsey Johnson

What was the driving force in 1957 that led to the inception of private mortgage insurance (MI)?

While the late 1950s was a time of great economic prosperity, the devastating effects of the Great Depression and World War II still impacted how financial institutions viewed risk. These institutions were leery of issuing mortgages with less than 20 or 25 percent down, unless the Federal Housing Administration (FHA) insured them. However, the red tape, expense, and regulations involved in working with the FHA made it impractical for many banks to lend and served as a barrier to homeownership for many low- to moderate-income borrowers. As a result of the precarious mortgage lending situation, a real estate attorney based in Milwaukee, WI named Max Karl sought a way to allow banks to more efficiently serve borrowers with low down payment loan options by insuring home loans with private MI. To do this, Karl founded Mortgage Guaranty Insurance Corporation (MGIC) and the rest is history.

Since 1957, how has private MI helped support homeownership?

Having mortgage insurance makes originating high loan-to-value (LTV) loans safer for the financial institutions we serve, allowing them to reduce their risk and lend to credit-worthy borrowers who bring less than 20 percent down to the table. This allows borrowers to become homeowners sooner than would otherwise be possible. It also allows homeowners to build the kind of long-term wealth that comes with having equity in a home.

Why should borrowers consider private MI?

I encourage borrowers to thoroughly explore all home loan options when buying a home; being well informed is the key to making the best choice based on one’s individual needs. That said, private MI offers an affordable and sustainable low down payment path to homeownership. What’s more, unlike some other low down payment programs, private MI automatically cancels once a homeowner reaches 78 percent equity in his or her home (or 80 percent equity upon request) and meets investor and/or Homeowner Protection Act requirements. This benefit of private MI can save homeowners thousands of dollars over the life of their loan.

How does private MI fit into the mortgage finance system?

Simply put, private MI helps reduce risk in the mortgage financing system by putting private capital in front of taxpayers and the federal government. Private MI does this by meeting a requirement established by Congress that low down payment loans sold to the government-sponsored enterprises Fannie Mae or Freddie Mac (the GSEs) have extra credit protection.

If the borrower defaults on their loan and there isn’t enough equity in the home to cover what is owed on the mortgage, private MI is there to offset the loss. With the GSEs in conservatorship and the government effectively guaranteeing the loans assumed on the GSEs’ balance sheets, taxpayers face direct exposure to mortgage credit losses experienced by the GSEs. When private MI is in place, private capital – not taxpayers – cover the first losses on a default up to certain coverage limits.

To give you an idea of what that means in real dollars, the private MI industry has paid more than $50 billion in claims for losses to the GSEs since they entered conservatorship during the 2008 financial crisis

What’s changed in the private MI industry over the past 60 years?

I like to say “this isn’t our father’s MI.” The private MI industry has been through a lot in its 60-year history. Most recently, we learned some valuable lessons during the Great Recession. Prior to that, the industry had never experienced a coast-to-coast collapse in the housing market. It’s true there have been times of great economic hardship during the industry’s history, but nothing as widespread as this most recent economic downturn.

While the private MI industry’s commitment to helping expand homeownership in an affordable, sustainable way remains steadfast, it has incorporated the lessons learned from the Great Recession into how it operates today. This includes the industry’s capital standards and how it views, evaluates, and prices for risk.

These lessons have made the private MI industry a stronger partner with its customers and it is in a great position for the future.

Speaking of the future, what do you see for private MI going forward?

The private MI industry is in the midst of a once in a generation opportunity to positively reform the country’s housing finance system. To do it right, there must be a comprehensive approach to evaluate what the proper role is for the GSEs, FHA, and private capital.

Private mortgage insurers are ready, willing, and able to take on a larger role in housing finance. The industry’s transparent, risk-adjusted capital requirements set it apart from other forms of credit enhancement, and that stability – coupled with 60 years of experience insuring high LTV-residential mortgages – puts it in a unique position to support the expansion of homeownership.

As our county’s leaders continue to explore housing finance reform, it only makes sense for them to consider how they can leverage the private MI industry’s inclusive and scalable business model.

Statement: Mortgage Bankers Association Report on Reform Recommendations for the GSEs and the Housing Finance System

Posted on by dcadmin

USMI Logo 60th Anniversary

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USMI Statement on Mortgage Bankers Association Report on Reform Recommendations for the GSEs and the Housing Finance System

WASHINGTON — Lindsey Johnson, President and Executive Director of the U.S. Mortgage Insurers (USMI), today issued the following statement on the Mortgage Bankers Association report on reform recommendations for Fannie Mae and Freddie Mac (the GSEs) and the housing finance system:

“Today the Mortgage Bankers Association (MBA) released a thoughtful report that outlines its recommendations to reform Fannie Mae and Freddie Mac (the GSEs) and the housing finance system. The report covers many areas and USMI is particularly pleased that MBA recognizes the value of loan-level credit enhancement and the benefit of private mortgage insurance (MI). Importantly the report promotes greater use of front-end credit risk sharing, including through private mortgage insurance. The report also recognizes the important functions of private market participants such as lenders, private mortgage insurers and others, and reinforces that there should be a bright line between the functions of these private market participants in the primary market, and those of secondary market participants.  Housing finance is the last, and possibly the greatest, unfinished reform needed from the financial crisis. USMI is pleased to see MBA and other industry, trade and consumer groups provide ideas and proposals for how to reform the housing finance system and we look forward to continuing to work with MBA and others to promote reforms to the housing finance system to put more private capital in front of taxpayer risk and to create a more sustainable housing finance system that works for market participants, taxpayers and consumers.

“For 60 years, MI has provided effective credit risk protection for our nation’s mortgage finance system. This time-tested form of private capital should be the preferred method of absorbing credit loss in front of any government guaranty, helping to minimize taxpayer risk while ensuring mortgage credit remains accessible.”

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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: March 2017

Posted on by Rhina Portillo

Here is a roundup of recent news in the housing finance industry, including the unveiling of USMI’s new logo to commemorate 60 years of making homeownership possible through private mortgage insurance and housing policy developments in Congress and in the executive branch.

  • The private mortgage insurance industry turns 60. USMI unveiled its new logo to commemorate 60 years of private mortgage insurance (MI) making homeownership possible for millions of Americans. Since 1957, private MI has served as a reliable and affordable method of expanding homeownership, while simultaneously protecting American taxpayers and the government from exposure to mortgage credit risk. Stay tuned for more activities!
  • USMI and others send letter to Congress on g-fees. Scotsman Guide reported on a letter sent by USMI and 13 other industry trade groups to Reps. Mark Sanford (R-SC) and Brad Sherman (D-CA) on a bill they introduced to ensure that guarantee fees (g-fees) charged by Fannie Mae and Freddie Mac (the “GSEs”) are used solely to insure against the credit risk of home mortgages. In 2016, the mortgage finance industry successfully fought off a legislative proposal to use g-fees collected by the GSEs to fund highway projects. The letter reads: “G-fees are a critical risk management tool used by Fannie Mae and Freddie Mac to protect against losses from loans that default. Increasing g-fees for other purposes imposes an unjustified burden on homeowners who would pay for any increase through higher monthly payments for the life of their loan. … whenever Congress has considered using g-fees to cover the cost of programs unrelated to housing, we’ve informed lawmakers that homeownership cannot, and must not, be used as the nation’s piggybank. By preventing g-fees from being scored as a funding offset, H.R. 916 gives lawmakers a vital tool to prevent homeowners from footing the bill for unrelated spending. We are grateful to you for introducing this bipartisan legislation and urge its consideration by the House.”
  • Carson confirmed as HUD Secretary. On March 2, Dr. Ben Carson was confirmed as the new Secretary for the Department of Housing and Urban Development (HUD). USMI released a statement congratulating Secretary Carson on his confirmation and welcoming the opportunity to work with the Secretary and his team to promote a stronger and more equitable mortgage finance system, as well as an expanded role for private capital.
  • Investopedia has good video explaining MI. USMI’s website features a new video courtesy of Investopedia to help people better understand what private MI is and how it helps people who cannot afford a 20 percent down payment to buy a home. To watch the video, click here.

Statement: FHA Mortgage Insurance Premium Reduction

Posted on by dcadmin

WASHINGTON —The Federal Housing Administration (FHA) announced today it will reduce its mortgage insurance premiums (MIPs) by 25 basis points. In November 2016, a HUD official stated there would be no additional MIPs cuts following its annual report to Congress on the financial status of its Mutual Mortgage Insurance Fund (MMIF), which showed it had finally reached its required capital levels after nearly a decade of severe stress. The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“While the MMIF is making needed improvements to its financial health, now is the time to establish a more coordinated housing policy to ensure broad access to low down payment lending while reducing the government’s footprint in housing and protecting taxpayers. Arbitrary reductions to the FHA’s MIP is bad policy because it pulls borrowers who would otherwise be served by the conventional Fannie Mae and Freddie Mac market, which is backed by private mortgage insurance for first losses versus the taxpayer. Taxpayers are currently exposed to $1.3 trillion in mortgage risk outstanding at FHA. As a result, and unless Fannie Mae and Freddie Mac make commensurate fee adjustments to reflect the FHA decision, the government will likely assume increased amounts of mortgage credit risk.

“We agree with views of past FHA commissioners who contend private capital should play a leading role in guaranteeing low down payment mortgage credit risk so the government and taxpayer don’t have to. Given the wide availability of MI-backed mortgages, the FHA does not need to undercut private capital. USMI continues to believe that FHA serves a very important role, but it has expanded its footprint dramatically since the financial crisis and should instead remain focused on its core mission of serving underserved borrowers. FHA and the GSEs should be much more coordinated to promote broad sustainable homeownership.

“The last time FHA reduced its premiums in 2015, the move resulted in a high volume of FHA loan refinancing versus new mortgage origination, in essence maintaining the same borrowers and home loans while collecting less in insurance premiums. In other words, the same FHA mortgage credit risk but with less protection. This will result in a less financially resilient FHA and increased risk for taxpayers.”

For the consumer, private MI offers distinct advantages over FHA mortgage insurance. For instance, unlike FHA, private MI can be cancelled once approximately 20 percent equity is achieved either through payment or home price appreciation. This step immediately lowers the monthly mortgage for the homeowner.

Private mortgage insurers, who put their own capital at risk to mitigate mortgage credit risk, provided over $50 billion in credit risk protection since the financial crisis to the GSEs and did not take any taxpayer bailout. The market has been strengthened since the financial crisis as all MIs have all implemented significant new capital requirements, or the Private Mortgage Insurer Eligibility Requirements (PMIERs), which are stress-tested financial and capital requirements established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, enhancing MI’s ability to assume mortgage credit risk in the future.

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

Statement: FHA’s Annual Report to Congress

Posted on by dcadmin

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For Immediate Release             

Media Contact: Dan Knight

202-777-3544

media@usmi.org

USMI Statement on FHA’s Annual Report to Congress

WASHINGTON — Today, the Federal Housing Administration (FHA) released its “Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund (MMIF) Fiscal Year 2016.” The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“Consistent with improvement in the overall mortgage credit market, we welcome the news that FHA’s single-family forward program and the home equity conversion mortgage (HECM) program are combined above the statutory required 2 percent capital ratio. Now that FHA’s single-family fund has climbed its way back, this moment presents an opportunity for the new Administration and lawmakers to consider a coordinated housing policy to ensure broad access to low downpayment lending while reducing the government’s footprint in housing and protecting taxpayers.

“FHA serves an important countercyclical role in the mortgage finance system. Following the financial crisis, FHA’s insured market share grew nearly 300 percent from its pre-crisis market and remains at elevated levels today — and it has taken nearly a decade for the MMIF to recover from serving this countercyclical role. Now that FHA is back to meeting the 2 percent ratio requirement, there is also an opportunity to focus on strengthening FHA’s capital standard, which is dramatically less than what is required of FHA’s private market counterparts, to make the agency more financially resilient going forward. Changes in market conditions, or changes in the very volatile HECM program, could easily push the FHA back into the red.

“Further, this is also the time to refocus the FHA back to its core mission. Fortunately, today there is a healthy low downpayment GSE mortgage market — backed by private mortgage insurance — available to borrowers so FHA no longer needs to play an oversized role in our housing market. Private mortgage insurers put their own capital at risk to mitigate mortgage credit risk, provided over $50 billion in credit risk protection since the financial crisis to the GSEs, and did not take any taxpayer bailout. And this market has been strengthened since the financial crisis as all MIs have all implemented significant new capital requirements, or the Private Mortgage Insurer Eligibility Requirements (PMIERs), which are stress-tested financial and capital requirements established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, enhancing MI’s ability to assume mortgage credit risk in the future.

“The MI industry and FHA should serve complementary roles to promote broad and sustainable homeownership. To accomplish this, FHA needs to not only become more financially resilient, in line with the rest of the financial system, but also remain focused on its core mission of serving underserved communities. USMI stands ready to work with the new Administration and Congress to enhance a mortgage finance system that meets the needs of low downpayment borrowers while protecting taxpayers.”

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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.