Good News for Housing and Consumers From FHA

Despite dire predictions from many quarters the Federal Housing Administration's (FHA's) Mutual Mortgage Insurance Fund (MMIF) has returned to solvency.  And it did it a full three years ahead of the best estimates back in 2012.  The Department of Housing and Urban Development (HUD) said on Monday that the Fund has gained nearly $6 billion in value over the last year and now stands at $4.8 billion with a capital ratio of .41 percent.  One year ago that ratio was a negative .11 percent.

HUD made the financial announcement as it released its annual report to Congress.  An independent actuarial report shows that the fund has gone from a negative value to a growth of $21 billion within the last two years.

In September 2013 FHA had to draw $1.7 billion against its borrowing authority from the Treasury Department, the first time in its 79 year history it had required such support.  The draw came after the MMI failed to maintain its congressionally mandated capital-to-loan ratio of 2.0 percent for three consecutive years and an independent audit estimated it would not return to that ratio until 2017.  It now appears that it will reach 2.0 percent sometime in FY 2016 after regaining an additional $15.1 billion in value over the remainder of this fiscal year.  As late as December 2013 there were many who predicted the agency would have to return to Treasury to request more support.

HUD credited the improved financial picture to an aggressive set of policy actions.  Delinquency rates in the agency's portfolio of guaranteed loans has dropped by 14 percent and recovery rates improved by 16 percent since last year.  Since the housing crisis began FHA has made significant changes to underwriting standards, loss mitigation policies, and recovery strategies and has raised insurance premiums. 

"This year's report shows that the fundamentals of the Fund are strong," said HUD Secretary Julian Castro. "Over the past five years, FHA has taken a number of prudent actions to restore the Fund's fiscal health. This is positive news for the economy and the millions of American families that count on FHA."

 "Improving the performance of the Fund by $21 billion in two years is good news for the housing market," said Acting FHA Commissioner Biniam Gebre. "FHA will continue to focus on meeting its mission of creating responsible access, investing in our economy and preserving pathways to the middle class. We remain dedicated to giving more hard-working responsible families the chance to buy a home and not a returning to the days of reckless lending that caused so much pain for middle-class families and the economy."

David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA), said following the release of the report that the continued improvement in the value of the MMI Fund was good news for taxpayers and the program, as almost all of the vital metrics, including delinquencies, foreclosures, and recoveries on property disposition, continue to improve.

"Maintaining this trend will require FHA to continue its ongoing work to improve transparency and certainty around its loan quality assessment methodology, as well as to re-examine mortgage insurance premiums, both the amount and the structure. Premiums are currently at an all time high, and FHA needs to find the right balance so it can meet its mission and further grow its reserves by sustainably increasing volumes without being adversely selected should only the highest risk borrowers be willing to pay the high premiums," Stevens said.