The U.S. Department of Housing & Urban Development (HUD) has released its annual report to Congress on the financial condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund. The independent actuarial report shows that FHA’s Mutual Mortgage Insurance Fund (MMIF) has gained $15 billion dollars in value over the last year and now stands at negative $1.3 billion. The current capital ratio is negative 0.11 percent. The actuary anticipates that the Fund will return to the required two percent capital reserve ratio in 2015, two years sooner than projected last year. Meanwhile, FHA maintains over $48 billion in liquid assets to pay expected claims.
“What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” stated Secretary Donovan. “We look to the future and remain committed to continuing our progress to strengthen the MMI Fund so that ladders of opportunity are available to all Americans for generations to come.”
“As the value of the Fund continues to improve, FHA will make every effort to maintain this positive momentum while simultaneously ensuring qualified borrowers in underserved markets can responsibly access mortgage credit,” noted FHA Commissioner Carol Galante. “Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit. The fact that economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”
The independent actuarial report identified several factors as drivers for the improvement in FHA’s position compared to last year, including:
►Early Payment Defaults are at their lowest levels in seven years which shows that changes in credit and underwriting policy have improved the performance of the newest books of business.
►An 18 percent drop in serious delinquency rates and a 20 percent drop in foreclosures starts are a result of enhanced loss mitigations policies.
►FHA REO recovery rates up 28 percent from last December, and this figure does not account for the future impact of FHA’s new streamlined short sale program which was launched in July.
“FHA continues to plays a critical role in the housing market, as the primary provider of credit for qualified first-time homebuyers and those with little money for a downpayment," said David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA). "Given the credit tightening occurring as a result of implementation of regulations such as the Ability to Repay/Qualified Mortgage (QM) rule, policymakers must continue to protect and improve the MMI fund in order to ensure that FHA can serve its critical mission in the single family market. MBA looks forward to working with all stakeholders to ensure FHA remains a key, positive component of the housing market.”
The report makes clear that the steps this Administration has taken to improve the health of the Fund are beginning to take hold and we are starting to turn the page on the financial crisis that brought many institutions to their knees. These actions include tightened credit standards, adjustments to premiums, and improved and expanded use of loss mitigation and REO alternatives all while protecting access to affordable credit for qualified borrowers.
“The 2013 Actuarial Review released today shows that FHA is on a positive trajectory to rebuild its capital reserve fund and meet the congressionally required two percent excess reserve amount by 2015," said the National Association of Realtors (NAR) in a statement. "These promising gains are the result of strong leadership and a commitment to policies that balance risk with FHA’s mission of making mortgage insurance available to qualified homebuyers."
However, FHA continues to seek a number of legislative changes to build upon this momentum. These include:
►Ability to seek indemnification from all classes of FHA approved lenders;
►Authority to terminate lender approval on a national, instead of regional, basis;
►Revision of the compare ratio statute, to provide agility to FHA in lender monitoring;
►Tools to enable FHA to more efficiently acquire the resources necessary to monitor its portfolio
►Facilitating servicing by specialty servicers, which assists borrowers and ultimately reduces costs to the Fund.
Through the coming years, FHA will continue to focus on protecting and improving the performance of the Fund – playing its critical role of ensuring access to credit for qualified borrowers in underserved markets.