FHA Insurance Fund Capital Reserves Fall; Capital Ratio Remains Above Threshold

Michael Tucker mtucker@mba.org

November 16, 2017

The Federal Housing Administration Mutual Mortgage Insurance Fund fell nearly $2 billion in fiscal year 2017 to $25.6 billion, HUD told Congress yesterday. The fund's capital ratio fell to 2.09 percent but remained above its congressionally mandated 2 percent threshold.

The department's Annual Report to Congress noted the capital ratio has remained above the statutory minimum for three consecutive years.

The MMI Fund supports FHA's single-family mortgage insurance programs including all forward-purchase and refinance transactions and mortgages insured under the Home Equity Conversion Mortgage reverse mortgage program.

"The fiscal health of FHA demands our constant attention and vigilance to ensure we can continue providing sustainable homeownership opportunities to working families without exposing taxpayers to excessive risk," HUD Secretary Ben Carson said, noting FHA must remain financially viable so future generations can climb the economic ladder.

Mortgage Bankers Association President and CEO David Stevens, CMB, said FHA deserves credit for its continued commitment to improving the single-family Mutual Mortgage Insurance fund's value. "The drop in the capital reserve ratio--primarily due to the extreme volatility of the HECM program--demonstrates that the Trump Administration was wise to reverse the mortgage insurance premium reduction made in the last days of the previous administration," he said. The Obama Administration had announced a plan early in 2017 to cut mortgage insurance premiums by 25 basis points. "Had the [planned] reduction remained in place, the value of the MMI fund would have more than likely dropped below the legal statutory 2 percent threshold."

Stevens said the FHA report reinforces the need for policymakers and Congress to seriously consider whether the Home Equity Conversion Mortgage program should be included in the MMI fund. "Removing [the HECM program] would strengthen the MMI fund, give a more accurate look at the health of FHA's forward book of business and could allow for the consideration of a mortgage insurance premium reduction," he said.

Excluding HECMs, FHA's fiscal year 2017 forward mortgages had a 3.33 percent capital ratio, well above what Congress requires. FHA's forward mortgages had a $38.4 billion positive economic net worth in FY 2017, contributing $4.2 billion to the MMI fund. By contrast, the 2017 HECM portfolio had a 19.84 percent negative capital ratio and a $14.5 billion negative economic net worth.

FHA said it took several actions to stabilize the HECM program earlier this year, "changes that will be reflected in next year's annual report," the agency said.

FHA endorsed 1,246,440 forward mortgages totaling $251 billion in unpaid principal balance in FY 2017. First-time homebuyers accounted for 725,102 or 82.2 percent of all FHA forward-purchase loans. The average loan amount of FHA-insured forward mortgages equaled $201,337 and the average borrower's credit score was 676 in FY 2017, down slightly from 680 the year before.

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