CoreLogic and the Urban Institute Host Capitol Hill Panel on Mortgage Insurance Policy Changes

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Alyson Austin
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Jordan Hassin
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February 12, 2015, Irvine, Calif. –

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, and the Urban Institute, a Washington, D.C.-based nonpartisan economic and social policy research organization, recently hosted a Capitol Hill panel event titled, “Mortgage Insurance: Premiums, Capital and Accessibility.” The panel featured candid discussion among participants from the nonprofit and private sectors, evaluating the latest standards proposed by President Obama to reduce FHA mortgage insurance fees and the Federal Housing Finance Agency’s (FHFA) private mortgage insurance eligibility requirements (PMIERS).

Moderated by Faith Schwartz, senior vice president of government affairs for CoreLogic, the discussion focused on how the reduction in FHA mortgage insurance premiums might drive borrowers towards the FHA and away from private mortgage insurers (PMIs). This shift towards FHA loans would create a higher volume of loans insured by taxpayers. Panelists also addressed the recent growth in PMI market share, the appropriate risk-pricing for premiums by those companies and the overall impact of new capital requirements for the PMIs by the Federal Housing Finance Agency (FHFA).

Offering a wide range of perspectives from within the industry, participants included Edward Golding, senior adviser for the Department of Housing and Urban Development; Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute; Rohit Gupta, president and CEO of Genworth; and Mark Zandi, chief economist for Moody’s Analytics.

Key topics and points shared by panelists included:

Credit Accessibility:

  • As a result of the FHA’s lower premiums, it is believed that more than 250,000 individuals will be able to become homeowners in the next 3 years; however, this does not return us to the speculation of a housing bubble.
  • Tight credit has continued to impede mortgage lending, a key factor constraining the overall economic recovery.  Access to credit is the gateway to home ownership.
  • FHA loans are intended to provide access to borrowers with lower FICO scores. A borrower with a 720 FICO score should be insured by a PMI rather than the FHA; however, the premium reduction will lead more qualified buyers to purchase FHA insurance.

Mortgage Affordability:

  • When lower FICO borrowers are able to get credit, they still face higher borrowing costs, which makes homeownership even less affordable. 
    • For example, a borrower with a FICO score of 639 will face approximately $3,000 more in fees than a borrower with a score of 760.
  • While private insurers offer risk based pricing, the FHA does not.  As such, the consistent rate-decrease across the board for the FHA is expected to make FHA insured mortgages more affordable to first-time homebuyers and buyers with limited income.
  • It can be assumed that the new Private Mortgage Insurance Eligibility Requirements will cause PMIs to raise premiums and in turn make private mortgage insurance less affordable for low credit households.  However, this effect should be reasonably small, and could be offset by either a reduction in the GSE guarantee fees (g-fees) or loan level pricing adjustments (LLPAs). The FHFA has stated that it intends to announce its plans on g-fees and LLPAs at the end of the first quarter or the beginning of the second quarter of 2015. 

Policy:

  • The recent book of business written by the FHA is extremely profitable based on performance and the higher fee structure put in place.
  • The reduction in FHA premiums will likely increase the FHA’s mortgage insurance market share, which has fallen from 41.2% in 2013 to 34.0% in 2014. 
  • The private industry will most likely have to raise capital in order to comply with the PMIERs, but these new requirements are still a step in the right direction.
    • If the PMIERs had been in place prior to the recession, mortgage insurers would have weathered the storm with greater success
  • Under the proposed PMIER rule, future premiums are not considered claims resources to be paid out in the event of a loss. If the GSEs were to exist in a future private status, this could be burdensome for those new entities from a capital building perspective

About CoreLogic

CoreLogic (NYSE: CLGX) is a leading global property information, analytics and data-enabled services provider. The company's combined data from public, contributory and proprietary sources includes over 3.5 billion records spanning more than 40 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk and related performance information. The markets CoreLogic serves include real estate and mortgage finance, insurance, capital markets, and the public sector. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. Headquartered in Irvine, Calif., CoreLogic operates in North America, Western Europe and Asia Pacific. For more information, please visit www.corelogic.com.

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