HUD: FHA Capital Reserves Now Exceed Congressional Mandate
For the first time since 2008, the Federal Housing Administration’s Mutual Mortgage Insurance Fund capital ratio exceeds its congressionally mandated threshold of 2 percent, HUD said yesterday.
HUD released its 2015 Annual Report for FHA (http://portal.hud.gov/hudportal/documents/huddoc?id=2015fhaannualreport.pdf) showing that the MMI Fund jumped by $19 billion in value during fiscal year 2015, bringing the capital ratio to 2.07 percent.
The increase marked the third consecutive year of gains; HUD Secretary Julián Castro said the jump over the threshold came in a year ahead of schedule, resulting from actions to reduce risk, cut losses and improve recoveries.
“FHA is on solid financial footing and positioned to continue playing its vital role in assisting future generations of homeowners,” Castro said. “We’ve taken a number of steps to strengthen the Fund and increase credit access to responsible borrowers. Today’s report demonstrates that we struck the right balance in responsibly growing the Fund, reducing premiums and doing what FHA was born to do–allowing hardworking Americans to become homeowners and spurring growth in the housing market as well as the broader economy.”
Mortgage Bankers Association President and CEO David Stevens, CMB, who served as FHA administrator from 2009-2011, said improvements in the value of the MMI fund over the past few years are the result of a series of policy decisions designed to rebuild the fund and protect taxpayers and the role FHA plays in the housing system, particularly for low and moderate income Americans and first-time homebuyers.
“FHA and its leadership should be commended for protecting the program, as well as the American taxpayer,” Stevens said. “One interesting thing to note is the overweight impact that the HECM program is having on the actuarial review. While only 10 percent of the overall portfolio, the HECM program has been responsible for a large part of the value swing in recent years, which is something that policymakers might want to be looking at. That, however, does not diminish what is really good news today, that the capital reserves are now forecast to exceed the 2 percent statutory minimum.”
The annual report noted a significant increase in loan volume during fiscal 2015, due largely to a reduction in annual mortgage insurance premium prices announced in January.
Major findings of the report:
–The MMI Fund’s capital ratio is now above Congress’ 2 percent requirement, a full year earlier than last year’s projection. FHA’s independent actuary reports the Fund’s capital ratio is 2.07 percent, up from 0.41 percent in fiscal 2014.
–FHA’s decision in January to reduce annual mortgage insurance premiums by a half a percent stimulated a 42 percent increase in total volume, including a 27 percent hike in purchase-loan endorsements. The MIP reduction also allowed FHA to expand access to credit by serving 75,000 new borrowers with credit scores of 680 or below.
–The economic health of the MMI Fund improved significantly in fiscal 2015 with a net value of nearly $24 billion, an increase of $19 billion over fiscal 2014, the largest one-year increase since fiscal 2012. In the past three consecutive fiscal years, the Fund’s value increased by $40 billion, compared to the Fund’s negative value of $16.3 billion in fiscal 2012.
–The Fund’s improved economic value is attributed FHA’s strong actions to reduce risk and improve loss mitigation. As a result, serious delinquencies declined by 39 percent and recoveries grew by 28 percent since 2012.
The report noted the HECM portfolio lost 8 percent of its value in fiscal 2014 while the economy was in the midst of a recovery. “This suggests that a 2 percent capital cushion for HECMs would be insufficient in a severe economic downturn,” the report said. “Market observers generally look to the MMI Fund capital ratio as a proxy for the health of the Forward portfolio, primarily because the Forward sub-portfolio makes up $1.0 trillion of the $1.1 trillion MMI Fund portfolio. However, significant swings in value over the last four years reflect the HECM portfolio’s outsized impact on the value of the MMI Fund.”
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. “Thus the volatility of the HECM portfolio may adversely affect decisions for the Forward portfolio,” HUD said.
