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FHA Report: Delaying Premium Increases Kept Mortgage Fund at Mandated Capital Levels

Published on November 16, 2017 by Greg Zagorski
FHA Report:  Delaying Premium Increases Kept Mortgage Fund at Mandated Capital Levels

The Federal Housing Administration (FHA) released November 15 its 2017 Report to Congress on the financial status of its Mutual Mortgage Insurance Fund (MMIF). The report finds that the economic value of the MMIF, which finances FHA’s single-family loan programs, declined slightly in fiscal year (FY) 2017 but still remains above its statutorily mandated capital ratio of 2 percent.

The report credits the Trump Administration’s decision in January to suspend a scheduled .5 percent reduction in annual premiums for new FHA home purchase loans for preserving FHA’s capital ratio above the 2 percent limit. It estimates that the premium reductions, if they had been allowed to go into effect, would have reduced the MMIF’s value by $3.2 billion, dropping its capital ratio to 1.76 percent.

MMIF’s economic value fell to $25.6 billion in FY 2017, from $27.6 billion in FY 2016. Its capital ratio in FY 2017 was 2.09 percent, down from 2.35 percent. This is the third consecutive year that the MMIF’s capital ratio exceeded the 2 percent minimum. The capital ratio fell below the 2 percent threshold in in FY 2009, due mainly to losses related to the economic downturn, and did not climb back to the minimum ratio until FY 2015. In FYs 2012 and 2013, due to losses caused by the financial crisis, the MMIF ran a negative balance. In September 2013, HUD was forced to request funding from the U.S. Treasury to keep it actuarially solvent.

The report suggests that the MMIF’s decline in economic value is due to losses realized through its Home Equity Conversion Mortgage Loan (HECM) program. In FY 2017, FHA’s HECM portfolio had a capital ratio of negative 19.84 percent and a negative economic net worth of $14.5 billion. In contrast, FHA’s single-family purchase mortgage portfolio had capital ratio of 3.33 percent and a positive economic value of $38.4 billion. In total, the forward mortgage portfolio contributed $4.22 billion to the MMIF.

FHA endorsed just over 1.2 million homeownership loans in FY 2017, around 882,000 of which financed home purchases (the rest were refinancings). 82 percent of FHA’s home purchase loans went to first-time home buyers. 56.4 percent of forward mortgages went to low- and moderate-income borrowers (those earning at or below 115 percent of area median income) and 33.3 percent went to minority borrowers. The average FHA borrower’s credit score in FY 2017 dropped 4 points from 680 to 676.

According to data from NCSHA’s Factbook, around 61 percent of HFA single-family program loans funded through mortgage revenue bonds (MRBs) in 2015 were insured by FHA.