The lack of affordable housing continues to be a focal point for the mortgage finance community as low- to-moderate income (LMI) and first-time homebuyers continue to report challenges in buying starter homes. In fact, today, the
USMI, in representing a sector of the industry that is dedicated to facilitating affordable low down payment lending and promoting sustainable homeownership, explored this topic in our recent survey, which found that lack of affordable housing and low supply of housing ranked among the top homebuying challenges. In fact, nearly 7 in 10 respondents ranked the lack of affordable housing as the number one housing challenge and nearly 6 in 10 stated that low housing supply is another top issue. These issues were more acute among minority and lower income homebuyers as 20 percent of
These challenges are front and center of the nation's housing agencies, FHFA and the
USMI continues to urge policymakers and the housing finance industry to focus on addressing this historic shortage of affordable homes to help balance housing prices and ensure access to homeownership. In a letter directed to the
We appreciate that policymakers recognize the role of low down payment mortgage options in facilitating homeownership. USMI's survey found that consumers view mortgage insurance (MI) as an important piece of the homeownership puzzle, specifically because MI levels the playing field by helping LMI and first-time buyers access home financing. In fact, 73 percent of all respondents view MI as needed and positive to obtaining homeownership, and nearly 70 percent of respondents citing that it is important to have access to these low down payment loans through both the conventional market backed by private MI and government-backed loans through FHA.
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To: The Honorable
For more than 60 years, the private mortgage insurance (MI) industry has enabled more than 33 million low- and-moderate income Americans to attain affordable and sustainable homeownership in the conventional market. Working with the government-sponsored enterprises (GSEs) --
Through the last year despite the unprecedented challenges presented by COVID-19 pandemic, mortgage credit has been largely affordable due to historically low interest rates and 2020 had the largest mortgage origination volume since 2006--both for the conventional and
Policy recommendations such as lowering FHA premiums too quickly and aggressively may significantly impact FHA's ability to address the challenges that will arise as COVID forbearances end, and coupled with the high delinquencies for FHA loans, could ultimately lead to higher claims, potentially undermining FHA's ability to help future borrowers. Further, reducing premiums would only add fuel to the fire in terms of artificially lowering what is already relatively affordable mortgage finance credit. Such actions would inject more "demand" into the market without addressing the "supply" side--which will only drive-up home prices further, hurting affordability at the lower end of the market most. Additionally, other policy recommendations such as ending FHA's "life-of-loan" policy, which would require FHA to continue to insure loans (because FHA insurance does not in fact cancel) without coverage being paid for, could similarly weaken FHA and its ability to meet the housing needs of future borrowers, while also exposing taxpayers to undue risk. FHA's insurance stays on the loan for the "life of the loan," therefore those who suggest ending the "life of loan" premiums are essentially advocating for providing free government-backed insurance.
There are other areas that may represent barriers to homeownership that policymakers should also choose to explore, including the targeted use of down payment assistance (DPA) programs for the borrowers who are unable to attain even a 3 percent or 3.5 percent down payment, who truly need the support. It is important that DPA programs are structured and operated in a sustainable manner so as to not create excessive leverage and risk within the mortgage finance system, or pose undue risk to taxpayers and the economy, which will ultimately hurt vulnerable homeowners most. As federal policy makers look to increase homeownership, it is essential that it is done in a manner that promotes sustainable homeownership for borrowers, as it does more harm to a family to get into a home that they can then not afford. There are meaningful ways to enhance borrower sustainability, such as by using part of a DPA to establish a reserve account for certain borrowers. Reserve accounts have been proven to be predictive of a borrower's ability-to-repay their loan, and by focusing on reserve accounts, HUD not only prioritizes getting people into homes, but also helping them be successful homeowners. There are other important considerations to promote sustainable homeownership, such as housing counseling, for borrowers where HUD or FHA aim to expand access to mortgage finance credit.
Finally, USMI's members intimately understand the importance of ensuring access to affordable, prudent low down payment mortgages in the marketplace. Understanding that more than 80 percent of first-time homebuyers over the last several years have depended on access to low down payment lending, it is more important than ever that the government-backed FHA program and the conventional market backed by private MI operate in a consistent and coordinated manner. Each plays an important, and distinct, role in the housing finance system and they should not be competing for market share--a situation which ultimately does a disservice to the borrowers we serve and to taxpayers.
FHA has long been a vital resource for many borrowers who may not have the ability to attain mortgage finance credit through the conventional market. Our industry looks forward to working with you and welcomes the opportunity to further engage with HUD and FHA to identify and address risks in the system and barriers to homeownership for borrowers, as well as find ways to further enhance a coordinated and consistent housing market that provides for the greatest access to sustainable mortgage finance credit.
We wish you the best in your transition to HUD Secretary and look forward to working with you once you are confirmed.
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