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CHLA Letter to FHFA Director Mel Watt re: MI Volume Discounts – 5/17/18


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2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
(571) 527-2601

May 17, 2018

The Hon. Mel Watt
Federal Housing Finance Agency
400 7th Street SW
Washington DC 20024
Dear Director Watt:
The Community Home Lenders Association (CHLA) writes to ask FHFA to investigate the pricing practices of private mortgage insurers (PMIs) with respect to use of volume discounts and other proxies for this in the offering of mortgage insurance for Fannie Mae and Freddie Mac loans.
CHLA continues to commend FHFA for its leadership in eliminating Guarantee Fee (also known as G Fee) disparities based on lender size or volume, in order to establish a policy of G Fee parity for Fannie Mae and Freddie Mac.  This has provided for a more level playing field for smaller lenders, thus increasing competition and improving competition, which is extremely beneficial to consumers.
The statutory charters for both Fannie Mae and Freddie Mac require that for loans they purchase which exceed 80% loan to value (LTV), “that portion of the unpaid principal balance of the mortgage which is in excess of 80 per centum is guaranteed or insured by a qualified insurer. . .”  Therefore, in the same way that FHFA has exercised its authority over G Fees, we believe FHFA has the authority to constrain PMI pricing that involves pricing disparities based on volume or size – whether borrower paid or lender paid.
Our members have become aware that certain PMIs appear to be engaging in pricing disparities for lender paid insurance based on either the size or volume of the lender.  This may involve offering better pricing to larger lenders – or alternatively, larger lenders bidding out loan pools based on PMI discounts from their customary pricing.  We also believe PMIs may be offering pricing which is more attractive when a lender agrees to do business exclusively with a particular PMI – a type of proxy for a volume discount.
Such practices, if verifiable, work to the competitive disadvantage not just of smaller mortgage loan originators – but also to the disadvantage of the consumers these smaller lenders serve.  Such policies amount to a kind of tax on certain borrowers and create a competitive advantage for larger lenders.
Therefore, we encourage the FHFA, as the regulator and conservator of Fannie Mae and Freddie Mac, to investigate whether such practices are taking place, to determine the level of discounts being offered, and to identify the extent to which such practices are taking place.
Further, if FHFA determines that such practices are taking place, we believe that FHFA should take action to prohibit such practices, similar to the actions it has taken to establish G Fee Parity.

Sincerely Yours,