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Th e M Rep o RT | 37 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest Continued on Page 38 genworth President & ceO testifies Before congress, stresses need for Balance Rohit Gupta says lower FhA premiums inhibit the agency from reaching its 2 percent capital reserve requirement while also precluding private capital from the market. P resident and CEO of Genworth Mortgage Insurance and chair of U.S. Mortgage Insurers (USMI) Rohit Gupta testified on behalf of the mortgage insurance industry at the House Financial Services Subcommittee on Housing and Insurance in late February, stressing the need for balance between the roles of the Federal Housing Administration (FHA) and USMI when it comes to taxpayers. Gupta focused his testi- mony 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 mort- gage insurance necessary to obtain a mortgage: either from the government-backed FHA program, or from private mort- gage insurance. Although these choices may seem similar from a public policy perspective, Gupta insisted they are quite different, especially when it comes to the impact on taxpayers. "FHA and private MIs can and should serve as comple- mentary forces that enable the FHA to remain focused on its fundamental mission of serv- ing 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." The hearing, "The 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, Julián Castro, on the condition of the FHA Mutual Mortgage Insurance Fund. Gupta noted underwriting in- centives, taxpayer incentives, and capital and oversight requirements are the key difference between the FHA and private MIs. If a loan defaults, FHA covers virtually 100 percent of loss, while private MIs cover first losses down to a stated coverage percentage. FHA's policy may provide less incentive to ensure loans are underwritten and ser- viced in a sensible and sustain- able way, while private insurers may create a stronger incentive to better underwriting and good servicing, according to Gupta. He added private capital covered more than $44 billion in losses on loans sold to the GSEs since they entered conservator- ship 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 that of private insurers at 0.41 percent— also lower than the 2 percent re- quired by law. MIs are required to maintain 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. "The recent decision to lower annual mortgage insur- ance 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." metlife agrees to $123.5 million settlement MetLife settled allegations of knowingly issuing FhA loans to unqualified borrowers. m etLife Home Loans, LLC, agreed to pay the United States $123.5 million to resolve claims it violated the False Claims Act by issuing Federal Housing Administration (FHA) loans insured by the U.S. Department of Housing and Development (HUD) the company knew did not meet application requirements, according to a release from the Justice Department. "MetLife Bank's improper FHA lending practices not only wasted taxpayer funds, but also inflicted harm on homeown- ers and the housing market that lasts to this day," said Acting Assistant Attorney General Joyce R. Branda of the Justice Department's Civil Division in the release. "As this settlement shows, we will continue to hold accountable financial institu- tions that elected to ignore the rules and to pursue their own financial interests at the expense of hardworking Americans." MetLife admitted that from September 2008 through March 2012, it repeatedly certified for FHA insurance mortgage loans that did not meet HUD under- writing requirements. The bank admitted it was aware a substan- tial percentage of these loans were not eligible for FHA mortgage insurance due to its own internal quality-control findings. MetLife found 1,097 FHA loans that did not meet requirements through its own evaluation process but only reported 321 of those mortgages to HUD, despite its obligation

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