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CHLA Urges Caution on FHFA PMI Capital Standards – 9/04/14

CHLA Urges Caution on FHFA PMI Capital Standards;
Cites Impact on Home Purchase, Risk Sharing Progress

CHLA Letter Supports Balanced Counter-party Risk Standards for PMIs

Contact: Scott Olson                                                                                                      For Immediate Release
(571) 527-2601                                                                                                               Wednesday, September 4, 2014
The Community Home Lenders Association (CHLA) today submitted a comment letter (see under Actions) to the Federal Housing Finance Administration (FHFA) that supports FHFA’s objective of ensuring that PMIs have sufficient capital to meet financial obligations on GSE loans. But CHLA’s letter raises concerns that the specific proposed requirements should not be excessive in relation to the actual level of counter-party risk. CHLA also offered some areas where it suggested FHFA might consider revisions, in areas that deal with different LTV risk levels, credit for yet uncollected premiums, and appropriate credit for seasoned loans.
“The CHLA applauds FHFA Director Watt for pursuing the important objective of ensuring that PMIs have sufficient capital to meet GSE obligations,” said Scott Olson, Executive Director of the CHLA. “However, we have concerns that levels not be unnecessarily excessive, given the key role that PMIs play in facilitating lower down payment GSE loans and in offering an important option in the move towards GSE risk sharing.”
In their letter, the CHLA supported the objective of addressing GSE’s counter-party risk with respect to private mortgage insurers (PMIs), including a thorough examination of the issue and appropriate capital standards. However, CHLA stressed that PMIs have and continue to play an important role in the home purchase market, particularly for first-time homebuyers. The letter notes that unnecessarily high PMI capital requirements could raise the cost of such loans and limit the depth of insurance available to support this important market segment.
CHLA also noted that it has been a strong proponent of PMIs playing a vital role in the transition to GSE risk sharing, through an upfront risk sharing model at the loan guarantee level. Such an approach would promote a more level playing field and avoid undue mortgage market concentration inherent in a capital markets approach. CHLA noted that excessive capital requirements could retard the development of this type of risk sharing.
CHLA’s letter asked FHFA to look into possible modifications to its proposed standards – such as distinguishing more clearly between different levels of risk for exposure levels below 85% of LTV, giving credit for uncollected and unearned premiums, and giving appropriate credit for the seasoning of performing loans