Comment Detail

Comment

MassHousing was created by an act of the Massachusetts Legislature in 1966 as an independent public authority charged with increasing affordable rental and for-sale housing in Massachusetts. Since making its first loan in 1970, the Agency has provided more than $17 billion in financing for the construction and preservation of affordable rental housing, and for affordable loan products for homebuyers and homeowners.

The Agency is recognized as one of the premier housing finance agencies in the country, and has won numerous national awards for creativity and innovation in affordable housing. In addition, MassHousing's expert management, professional operations and consistent financial performance have earned the Agency high marks among the credit rating agencies Standard & Poor's and Moody's.

In 1988 MassHousing established an independent mortgage insurance fund, The Massachusetts Home Loan Loss Reserve Fund, within the Working Capital Fund of the Agency. In October 2003 the name was changed to the MassHousing Mortgage Insurance Fund (“MIF”). MassHousing’s MIF is an approved mortgage insurer with both the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”). We provide regularly scheduled reports to Fannie Mae and Freddie Mac as required of us as an approved mortgage insurer.

In review of the Draft Private Mortgage Insurance Eligibility Requirements (PMIERs) MassHousing has been given assurance by senior Fannie Mae staff that current PMIERs do not apply to the MassHousing Mortgage Insurance Fund according to provisions within the Glossary of terms that states, “The GSE’s published requirements along with all other conditions required by the GSE related to the approval of private (as opposed to government) mortgage guaranty insurer applicant for approved insurer status and the continued eligibility of an approved insurer.” It would seem that the MassHousing Mortgage Insurance Fund would be categorized as “government mortgage guaranty insurer.”

The MassHousing Mortgage Insurance Fund supports the goals and objectives of the PMIERs in establishing safe and prudent standards of financial strength and operational integrity for approved mortgage insurers. Even though current PMIERs may not apply to the MIF, we assume responsibility for setting our own standards that hopefully will meet or exceed the PMIERs whenever possible given our size and scope of operation. We recently completed our interpretation of the calculation for the Total Risk-Based Required Asset Amount suggested in the PMIERs Draft and are pleased to report that we have more than sufficient capital to support this requirement. However, because we are a small public/government mortgage insurer with just $1.6 billion in insurance in force, our current capital, $95 million, does not meet the $400 million minimum required of a private mortgage insurance company. Of note, using traditional measurements the MIF has a net risk to capital ratio after reinsurance that is less than 2 to 1 and a net CAR of 437.

Our initial comment on the PMIERs is to advocate for a special class of mortgage insurer to accommodate small, public, government, and public mission focused mortgage insurance entities, whose objectives are to serve needy and deserving, low- and moderate-income homebuyers, and underserved markets. Without a special set aside for insurers with a strong commitment to low- and moderate-income borrowers, and underserved markets, those market segments could be adversely impacted by the capital requirements of the PMIERs on public mission mortgage insurance funds.
Capital requirements should be set commensurate with their risk and insurance in force. Quality Control and Risk Management requirements should also be set based on the size of the portfolio, annual insurance written and risk profile of their business production. Without such adjustments for the proportionate scope and volume of insurance, entities such as MassHousing’s Mortgage Insurance Fund could be excluded from eligibility as an insurer despite our financial strength and track record for full and timely claims payments to the GSEs, and success in serving the affordable housing market, during our 12 years as an approved GSE insurance provider.

With that we would also like to offer additional comments on the Draft PMIERs.

The proposed treatment of premium income in Available Assets should be adjusted to reflect income from post-2009 vintages. Since mortgage insurance premiums are mandated in order for coverage to remain in place, and reasonable assumptions can be made regarding persistency of the current origination book year, we believe that at least two years of premium should be allowed in the Available Assets calculation. Historical average durations of loans with mortgage insurance support this recommendation and in general loans under stressed economic conditions persist longer. Unearned premium reserves (UPR) should also be included in the calculation of Available Assets with an adjustment for refundable premiums.

The proposed risk-based asset factors for performing loans reflect severely stressed scenarios at the time the loan is originated yet do not take into consideration the seasonality of mortgages. As evidenced by industry performance loss curves, as mortgages age the probability for expected delinquency lessens. A considerable portion of MassHousing’s mortgage insurance book survived the financial crisis without delinquency. An adjustment to the risk-based asset factors for performing loans that age without delinquency would better allocate required capital to those loans which need it. In addition, the non-performing loan risk-based asset factors are punitive and do not reflect loss mitigation activities such as those employed by MassHousing. MIF has an embedded Unemployment Insurance policy associated with each insured loan. These unemployment policies serve to assist borrowers in making their payments while they seek new employment and significantly reduce the likelihood of foreclosure and ultimate claim loss. Ever-to-date, we have paid 4,127 benefits to 826 borrowers for $3,935,900. The average monthly benefit is $954 and the average duration is five months. Of the 826 borrowers who received benefits, The MIF has paid MI claims on 129 loans. The 129 borrowers represent 15.6% of all borrowers who have received benefits. Of these 129 claims, 14 were deeds-in-lieu, 33 were short sales, and 82 were foreclosures. We would hope that PMIERs would somehow take into consideration such unique loss mitigation resources used by specific mortgage insurance providers.

Since the risk-based asset factors are the main driver for required capital, it is also critical that we understand when and why they might be changed over the course of time. It is not clear in the PMIERs Draft at what point the risk-based asset factors might be changed. Therefore, it would be difficult for MassHousing to plan for additional capital requirements.

MassHousing’s goal of accommodating low- to moderate-income borrowers includes providing affordable mortgage insurance premiums. A result of the additional capital requirements may include higher premiums for mortgage insurance as well as reinsurance. This ultimately costs our borrowers more and may make it cost- prohibitive for them to participate in MassHousing’s lending programs. MassHousing suggests the GSEs and FHFA re-evaluate proposed risk-based asset factors in conjunction with GSE loan level pricing adjustments (LLPAs).

The MIF as the sole insurer for MassHousing participates in an integrated quality control process, designed to meet Fannie Mae requirements which are consistent with those requirements contained in the PMIER. We would hope that our quality control process would be allowed to remain integrated and not separated, which could create redundancies and double costs. MassHousing completes an annual MORA and mortgage insurance has been included in that process. We recommend that this process be allowed to continue.

Other considerations for MassHousing include the clarification of any potential adjustments for reinsurance contracts. MassHousing has a long history of utilizing reinsurance to reduce risk and efficiently deploy capital. Establishing clarity around the process and structure evaluation would be extremely important in our decision making process. Finally, eliminating or modifying the requirement for geographic diversity is necessary as MassHousing insures mortgages only in the Commonwealth of Massachusetts.

Thank you for your consideration of these comments.

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