U.S. Mortgage Insurers: Comments on FHFA's 2022-2026 Strategic Plan
On
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To:
Dear Acting Director Thompson:
On behalf of the private mortgage insurance (MI) industry and our member companies,
USMI supports the overarching goals articulated in the Strategic Plan to: (1) secure the GSEs' safety soundness; (2) foster housing finance markets that promote equitable access to affordable and sustainable housing; and (3) responsibly steward the FHFA's infrastructure. These goals build on your previous statement that "broad, fair access and the stability of financial institutions work together as pillars of the nation's housing finance system"3 and the associated objectives are important to carefully balance safety and soundness with access to financing in the conventional mortgage market. Upon review of the Strategic Plan, USMI would like to make the following observations and recommendations:
* GSE Pricing: Objective 1.3 calls on FHFA to "require the Enterprises to update their pricing frameworks to enhance safety and soundness while providing enhanced support for core mission borrowers." USMI supports a holistic review of the GSEs' pricing framework, including their loan-level price adjustments (LLPAs) and imbedded cross-subsidies. GSE pricing should be based on a transparent actuarial analysis of the mortgage credit risk being guaranteed by the GSEs, account for the significant improvements in underwriting and risk management, and - for low down payment mortgages - reflect the risk-reducing benefits of private MI. Further, FHFA should work in concert with the
FHFA should work closely with market participants, industry stakeholders, and consumer advocate organizations to review pricing and solicit feedback to best understand how the pricing framework impacts access to credit and the financial position of the GSEs. A transparent review process, including a request for information (RFI) exercise, will be beneficial to modify the GSEs' pricing framework in a manner that is consistent with policymakers' push to increase equity in the housing finance system.
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The challenges associated with addressing these borrowers' needs are complex and will require the engagement of many stakeholders. To ultimately be successful, it is essential that equitable homeownership initiatives be collaborative, transparent, and consistent with sound policy and risk management objectives. There must also be significant engagement and communication with, and transparency to, industry participants around how the Plans are assessed, approved, released, and implemented. This will promote collaboration between the GSEs, other market participants, and other stakeholders on policies and programs to address the racial homeownership and wealth gaps.
* New Products and Activities: Objective 1.1 calls on FHFA to "identify risks to the regulated entities and assess the safety and soundness of regulated entity operations," including through robust supervision and examination of GSE business activities, risks, and products. This should apply equally to both current and new products and activities to ensure proper oversight and transparency around new products and activities that the GSEs aim to introduce to the market. In
* Data and Technology Transparency: On several occasions, the Strategic Plan calls on FHFA to continue - or expand - its data reporting and analysis activities. This includes work around advancing equity in housing finance (Objective 2.2), incorporating climate change into regulated entity governance (Objective 1.4), and promoting the use of FHFA data products (Objective 2.3). USMI strongly supports additional transparency and data sharing initiatives to enable market participants to enhance access, affordability, and sustainability in the mortgage markets. FHFA should implement policies that allow industry participants and consumer advocate organizations to truly serve as partners to the GSEs on initiatives that aim to promote equitable housing, address barriers to homeownership, and continue prudent risk management. To that end, USMI encourages FHFA, in conjunction with the
Further, as FHFA works to "continue implementation of the final rule7 on the validation and approval of third-party credit scores model(s) that can be used by the Enterprises" (a component of Objective 2.5), it should ensure that the process is as transparent as possible during the four stages: (1) Credit Score Solicitation; (2) Submission and Initial Review of Applications; (3) Credit Score Assessment; and (4) Enterprise Business Assessment. Changes in credit scoring at the GSEs can significantly affect the mortgage origination process and the FHFA recognizes that the estimated industry-wide cost for a new single score environment is
USMI appreciates the opportunity to share its views on the FHFA's draft Strategic Plan for Fiscal Years 2022-2026 and we welcome any questions you may have regarding our observations and recommendations. Requests for additional information may be directed to
Sincerely,
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Footnotes:
1/ USMI represents the nation's leading private mortgage insurance companies and USMI membership comprises:
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4/ USMI's full comment letter is available at https://www.fhfa.gov//AboutUs/Contact/Pages/input-submission-detail.aspx?RFIId=1542.
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6/ 85 Fed. Reg. 71276 (
7/ 84 Fed. Reg. 41886 (
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