The USMI trade association has released a third-party study quantifying the benefits to consumers and taxpayers of authorizing deeper primary-MI coverage on GSE HLTV loans. The most interesting outcomes are, we think, renewed focus on the appropriate g-fee charged by the GSEs for all loans and the right level of capital a GSE needs to hold against its credit risk. The problems with this approach are 1) g-fees are set for political purposes regardless of borrower benefit and GSE risk; 2) the GSEs have no capital or investors able to demand return for it; and 3) policy-makers want g-fees high enough to subsidize risk-shares and transfers to Wall Street, not MI. They might well be wrong about this – USMI’s point – but this won’t be the first time that big deals are cut among friends.

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