HUD: FHA Insurance Fund Capital Reserves Grow by $3.8 Billion

HUD said the Federal Housing Administration’s Mutual Mortgage Insurance Fund’s capital ratio grew by $3.8 billion, rising to 2.32 percent, well above its congressionally required 2 percent threshold.

The department’s annual report to Congress ( said the MMI Fund’s capital ratio grew by 12 percent to $27.6 billion. The Single-Family Forward Portfolio gained $18.3 billion in value, outperforming the actuary’s projections by $10.1 billion and achieved a capital ratio of 3.28 percent. The increase marks the fourth consecutive year of net worth increase and the second consecutive year the FHA reserve ratio exceeded the 2 percent threshold.

“FHA’s strong, sustained progress has helped fuel the housing market recovery over the past eight years,” said HUD Secretary Julian Castro. “Today’s report once again confirms that our steps to maintain a financially sound Fund are paying off, giving more American families the opportunity to afford a home of their own.”

“FHA has come a long way since our housing crisis,” said Ed Golding, HUD’s Principal Deputy Assistant Secretary for Housing. “With evidence that FHA’s fundamentals are strong and improving, there is no doubt that FHA is making steady progress accumulating capital and, at the same time, improving access to credit for working families.”

The report, however, noted that while the MMI Fund rate of seriously delinquent loans is among the lowest recorded in the past 10 years, the Home Equity Conversion Mortgage (HECM) portfolio fell by $14.5 billion. HUD attributed the decline to changes in HECM modeling assumptions.

“The HECM model was updated to include better estimates of the expenses and sales prices of defaulted HECM loans,” HUD said. “Despite the decline in the HECM portfolio, the MMI Fund is strong. The four year- positive trend is the result of long-term credit strategies put into action since the start of this Administration.”

The report acknowledged the HECM portfolio “continues to be volatile. HECM’s capital ratio has fluctuated widely over the past five years with no apparent trend toward improvement. Recent changes aimed at stabilizing the HECM program appear to be having a positive impact. However, the results are preliminary so it is too early to determine the long-term effect. To the extent that the MMI capital ratio serves as a proxy for the health of the Forward portfolio, including HECMs in the MMI Fund will impact the perceived performance of Forwards. A key challenge facing FHA is to stabilize HECM’s financial performance.”

In a statement. Mortgage Bankers Association President and CEO David Stevens, CMB, (who served as FHA Administrator from 2009-2011) commended FHA for taking steps to increase the value of the FHA MMI fund.

“The core strength of FHA’s forward book of business is representative of growing stability of the housing market nationally,” Stevens said.

However, Stevens also noted the volatility in the HECM book of business. “An important subtext to this report is the continued volatility in the HECM book of business, which this year turned negative, dragging down the overall value of the MMIF,” he said. “Given the importance of FHA to low and moderate income and first time homebuyers, the next administration may want to look at accounting for the two programs individually in order to isolate the critically important forward book from the wild swings of the HECM fund.”

Stevens added that the overall positive report on the state of FHA will most likely renew calls for a reduction in FHA fees. “It is a worthwhile conversation, but must caution that today’s report again shows the vulnerability to the reserve fund posed by the volatility in the HECM book,” he said. “Given the HECM volatility and recent concerns about liquidity in the Ginnie Mae market, these discussions should occur with an eye toward long term stability for the FHA program. We look forward to working with FHA to evaluate options that balance the need to ensure affordability for FHA borrowers, maintain actuarial soundness, and preserve stability in the Ginnie Mae mortgage backed security and mortgage servicing rights markets.”

FHA reported it endorsed 1.258 million mortgages in fiscal 2016, of which 879,521 were home purchase mortgages with an average loan size of $195,145. The average credit score was 680; the average loan size was $195,068. FHA endorsed $245 billion in single-family loans, while refinance activity comprised 30 percent of FHA endorsements. FHA endorsed 48,868 HECM loans.

Other key data:
–82.1 percent of FHA purchase loans were for first-time homebuyers, accounting for
722,075 purchase loans.
–10.9 percent of FHA borrowers were African-American and 17.5 percent were Hispanic.
–In calendar year 2015, FHA insurance was used for 25 percent of all purchase loans in America, but was used for 47 percent of home purchases by African-American households and 49 percent of purchases by Hispanic households.
–FHA assisted more than 48,868 senior homeowners to age in place through the HECM program. The average age of a HECM borrower was 73 years old.