U.S. Mortgage Insurers Chairman Issues Message on Private Mortgage Insurance

WASHINGTON, July 14 (TNStalk)(TNSres) -- The U.S. Mortgage Insurers issued the following statement on July 13, 2022, by Chairman Adolfo Marzol:

* * *

For just over a month now I have had the privilege to serve again as Chairman of USMI. I was proud to have played a role in founding this organization and watching its development over nearly a decade. Coming into this role after several years of public service at the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) gives me some added perspective about the current state of the U.S. housing finance system and the challenges it faces.

The private mortgage insurance (MI) industry remains rightfully focused on promoting affordable and sustainable homeownership opportunities, especially for minorities and traditionally underserved communities. This includes playing an important role in addressing the racial homeownership gap and collaborating with FHFA, Fannie Mae and Freddie Mac - the government-sponsored enterprises (GSEs) - to implement their Equitable Housing Finance Plans. At the same time, after witnessing numerous cycles over the last 40 years in housing finance, 2022 is clearly a year of shifting economic winds for the housing market and overall U.S. economy. Our actions to reach more borrowers and close the racial homeownership gap must remain mindful of the broader environment, because real success means borrowers and their families staying in their homes.

As the U.S. housing market experiences record high home price appreciation (HPA), largely driven by severely limited affordable housing supply, homebuyers - especially first-time, low- to moderate-income (LMI), and minority borrowers - face significant challenges in securing a home. This reality leaves many potential homeowners locked out of the market. In light of a red-hot housing market and rising mortgage interest rates, it is critical that affordable, sustainable low down payment mortgages remain available to meet borrowers' needs.

Private MI enhances the ability of first-time, minority, and LMI homebuyers to purchase homes in an affordable and sustainable way. It enables them to achieve housing stability and build generational wealth by allowing them to purchase a home sooner with less than a 20% down payment - a goal that progressively moves further out of reach due to rising mortgage rates, inflation, and record-high house prices. In fact, USMI's recent "MI in Your State" report revealed that saving for a 20% down payment could take potential homebuyers 14 years -- significantly longer than buying with 5% down and a conventional mortgage backed by private MI.

The report also found that in its 65-year history, private MI has enabled more than 37 million people to access affordable and sustainable low down payment mortgages. In the last year alone, private MI helped nearly 2 million homeowners purchase or refinance a mortgage. Nearly 60% of purchase loans with private MI were to first-time buyers, accounting for nearly 900,000 new homeowners, and more than 40% of borrowers with private MI had annual incomes below $75,000, with an average loan amount of $310,000.

Private MI is a proven part of the affordable housing solution, representing a small cost that allows homebuyers with smaller down payments to access the dream of homeownership. A working paper from Fannie Mae revealed what drives homebuying costs, highlighting that the largest contributors are consistently ongoing non-mortgage costs, which collectively are about half of total costs over the homeownership period. The paper notes "[t]he fees charged to cover borrower credit risk that are part of the cost of the mortgage, GSE g-fees (roughly four percent) and PMI [private MI] (roughly one to three percent) are a relatively small part of the cost of homeownership." Moreover, while other housing and mortgage costs have increased in recent years, the average pricing of private MI has decreased by more than 30% over the past four years. Meanwhile, the GSEs' pricing has remained steady, with g-fees averaging 53-56 basis points (bps) for 2017-2020.

One potential barrier to homeownership that has been noted by some is high closing costs. It is important to note that borrower-paid private MI , the predominant form of MI used in today's market, requires just a small monthly payment. There is no material upfront cost to borrowers. The facts are clear: private MI facilitates the ability of borrowers to get into a home affordably, with much less cash needed at the closing table than putting 20% down.

Private MI is a proven part of the affordable housing solution, representing a small cost that allows homebuyers with smaller down payments to access the dream of homeownership. A working paper from Fannie Mae revealed what drives homebuying costs, highlighting that the largest contributors are consistently ongoing non-mortgage costs, which collectively are about half of total costs over the homeownership period. The paper notes "[t]he fees charged to cover borrower credit risk that are part of the cost of the mortgage, GSE g-fees (roughly four percent) and PMI [private MI] (roughly one to three percent) are a relatively small part of the cost of homeownership." Moreover, while other housing and mortgage costs have increased in recent years, the average pricing of private MI has decreased by more than 30% over the past four years. Meanwhile, the GSEs' pricing has remained steady, with g-fees averaging 53-56 basis points (bps) for 2017-2020.

One potential barrier to homeownership that has been noted by some is high closing costs. It is important to note that borrower-paid private MI , the predominant form of MI used in today's market, requires just a small monthly payment. There is no material upfront cost to borrowers. The facts are clear: private MI facilitates the ability of borrowers to get into a home affordably, with much less cash needed at the closing table than putting 20% down.

* * *

REPORT: https://www.fanniemae.com/media/document/pdf/cost-housing-working-paper-0322.pdf https://www.usmi.org/wp-content/uploads/2022/05/USMI-2022-MI-in-your-State-Report.pdf

* * *

Original text here: https://www.usmi.org/blog-private-mortgage-insurance-serving-the-u-s-housing-finance-system-for-over-65-years/