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46 MORTGAGE INSURER COMPARES FHA WITH PRIVATE MARKET AT CONGRESSIONAL HEARING President and CEO of Genworth Mortgage Insurance and Chair of U.S. Mortgage Insurers Rohit Gupta testified on behalf of the Mortgage Insurance Industry (MI) at the House Financial Services Committee Housing and Insurance Subcommittee, stressing the need for balance between the roles of the Federal Housing Administration and MI when it comes to taxpayers. Gupta focused his testimony on the recent decision to lower annual mortgage insurance premiums at FHA. Potential homeowners without the ability to make a 20 percent down payment currently have two options to gain the mortgage insurance necessary to obtain a mortgage: either from the government-backed FHA program or from private mortgage insurance. Although these choices may seem similar from a public policy perspective, Gupta believes they are quite different, especially when it comes to the impact on taxpayers. "FHA and private MIs can and should serve as complementary forces that enable the FHA to remain focused on its fundamental mission of serving underserved markets," he said. "But for this model to work properly, it is critically important that the FHA not stray too far afield from that mission." e recent hearing, "e Future of Housing in America: Oversight of the Federal Housing Administration, Part II," followed a hearing on February 11 featuring Housing and Urban Development Secretary Julian Castro on the condition of the FHA Mutual Mortgage Insurance Fund. Gupta notes underwriting incentives, taxpayer incentives, and capital and oversight requirements are the key difference between the FHA and MI. If a loan defaults, FHA covers virtually 100 percent of loss, while MI covers first losses down to a stated coverage percentage. FHA's policy may provide less incentive to ensure that loans are underwritten and serviced in a sensible and sustainable way, while MI's policy may create a stronger incentive for better underwriting and good servicing, according to Gupta. He added MI private capital covered more than $44 billion in losses on loans sold to the GSEs since they entered conservatorship in 2008, losses that otherwise would have been shouldered by taxpayers, while FHA required $1.7 billion from U.S. taxpayers due to a capital shortfall after the financial the crisis. Currently, FHA capital reserve standards are lower than MI at 0.41 percent, also lower than the 2 percent requirement. MIs are required to be at a minimum risk to capital ratio of 4 percent, and all MIs are reporting risk to capital ratios at or above 5 percent, with these standards expected to rise at the end of the year. "e recent decision to lower annual mortgage insurance premiums at FHA has two immediate consequences," Gupta said. "One, it slows the trajectory of FHA attaining the 2 percent minimum capital requirement, and two, it limits the return of private capital to support U.S. housing finance." DELINQUENCY RATES FALLING ON FANNIE MAE-BACKED MORTGAGE LOANS e delinquency rate on residential mortgage loans backed by Fannie Mae declined across the board in 2014 due to a number of reasons that include foreclosure alternatives, home retention solutions, completed foreclosures, improved loan payment performance, and acquisitions of loans with stronger credit profiles, according to Fannie Mae's recently released annual report. About 1.47 percent of mortgage loans backed by Fannie Mae were 30 to 59 days delinquent as of December 31, 2014—a decrease from 1.64 percent at the end of 2013 and from 1.96 at the end of 2012. For loans that were 60 to 89 days delinquent, the percentage dropped from 0.66 percent at the end of 2012 to 0.49 percent in 2013 and down to 0.43 percent as of December 31, 2014. On loans that were "seriously delinquent," or 90 days or more past due, the percentage has also been steadily falling—from 3.29 percent in 2012 down to 2.38 percent in 2013 to 1.89 percent as of December 31, 2014. e percentage of seriously delinquent loans that were delinquent for more than 180 days dropped from 73 percent at the end of 2013 to 70 percent at the end of 2014, and the percentage of seriously delinquent loans that were more than two years delinquent dropped from 36 percent at the end of 2013 down to 34 percent at the end of 2014. e single-family serious delinquency rate has declined every quarter since the first quarter of 2010, according to Fannie Mae. Fannie Mae cites one of the reasons for improvement in loan performance as stronger credit profiles of loans the enterprise has acquired since 2009. ose loans make up about 81 percent of Fannie Mae's single-family guaranty book of business. Although the serious delinquency rate for loans backed by Fannie Mae has decreased, it is decreasing at a slower pace, which is a trend that the enterprise expects will continue. "Our single-family serious delinquency rate and the period of time that loans remain seriously delinquent continue to be negatively impacted by the length of time required to complete a foreclosure in some states," Fannie Mae wrote in the report. "High levels of foreclosures, changes in state foreclosure laws, new federal and state servicing requirements imposed by regulatory actions and legal settlements, and the need for servicers to adapt to these changes have lengthened the time it takes to foreclose on a mortgage loan in a number of states, particularly in New York, Florida, and New Jersey. Longer foreclosure timelines result in these loans remaining in our book of business for a longer time, which has caused our serious delinquency rate to decrease more slowly in the last few years than it would have if the pace of foreclosures had been faster." In addition to the slow pace of foreclosures in some areas, other factors that influence the serious delinquency rate of loans include loan modifications, home price changes, unemployment levels, and other macroeconomic conditions. Fannie Mae said it expects the number of seriously delinquent single-family loans in the enterprise's book of business to "stay above pre-2008 levels for years." Out of the approximately 489,000 permanent loan modifications completed last year, 136,898 of them were completed through Treasury's Home Affordable Modification Program (HAMP), according to HOPE NOW. KNOW THIS

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