FHA's Stevens Reports: Downpayment Assistance May Wind Up Costing the FHA $13.6 Billion

November 16, 2010

The Federal Housing Administration (FHA) has released its annual independent financial report and economic outlook for fiscal year 2010 to Congress. "I am pleased to report that FHA is stronger today than last year," said FHA Commissioner David H. Stevens. "The actuarial study finds that since last year, FHA’s capital reserves held steady, insurance claims declined significantly, and the economic value of FHA’s single-family insurance fund grew by more than $1 billion."
Policy changes instituted by the FHA have, to date, exhibited improved loan quality and increased quality control, thus helping protect future FHA portfolio performance.
The report found that loans insured before 2009 are responsible for 70 percent of the expected single-family FHA loan losses. Even though they are now prohibited, “seller-financed downpayment assistance loans” produced $6.6 billion in claims to date with the FHA, and may ultimately cost the agency approximately $13.6 billion. Without these seller-financed loans, FHA’s capital ratio would be above the congressionally-mandated two percent threshold.
In terms of the FHA's capital resources, th their highest level ever and are $6.5 billion greater than the independent actuary predicted last year. In 2010, FHA’s total capital resources have increased by $1.5 billion to hit the $33.3 billion mark, while insurance claim expenses are 21 percent lower than predicted in 2009’s report. The independent review projects the  FHA’s capital reserve ratio to remain positive at 0.50 percent of total insurance in force, falling fractionally from 0.53 percent in 2009. FHA’s capital ratio is expected to be 1.99 percent in 2014 and exceed the two percent statutory requirement by 2015.
For more information, visit www.hud.gov.

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