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FHA Makes Progress With Finances

Capital ratio deficit declines

Dec. 13, 2013

By Mortgage Daily staff

While the Federal Housing Administration's Mutual Mortgage Insurance Fund is still operating in the red, the deficit has diminished.

An independent actuarial report delivered to Congress Friday found that FHA's Mutual Mortgage Insurance Fund stands at a negative $1.3 billion.

That was a huge improvement over a year ago, when the Department of Housing and Urban Development reported that the negative economic value was $16.3 billion.

That puts the capital ratio at a negative 0.11 percent. FHA's capital reserve ratio was reported at a negative 1.44 percent a year earlier.

HUD said that the actuary expects that the insurance fund will return to the required 2 percent capital reserve ratio in 2015 -- two years sooner than projected last year.

"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," HUD Secretary Shaun Donovan said in a written statement.

FHA reportedly has more than $48 billion in liquid assets to pay expected claims.

Among factors helping to improve FHA's finances are mortgage insurance premium adjustments.

The report indicated that early payment defaults are at their lowest levels in seven years as tightened credit standards have improved the performance of the newest vintage loans.

In addition, the report pointed to enhanced loss mitigations policies as the driving force behind an 18 percent drop in serious delinquency rates and a 20 percent drop in foreclosures starts.

FHA recovery rates have reportedly risen 28 percent from a year ago. More improvement is expected from FHA's new streamlined short sale program, which was launched in July.

Mortgage Bankers Association President and Chief Executive Officer David H. Stevens, who previously served as federal housing commissioner, said the report is a sign that the MMI fund is headed in the right direction.

"The report indicates that the fund's improvement is attributable to a few important factors, most critically the continued focus to implement policy changes which have increased revenue and have led to improved loan performance, better risk management and better recovery rates," Stevens stated. "These program improvements have increased the financial stability of the fund, even in the face of the weaker economic assumptions that the actuaries applied in this year’s study."

Legislative changes sought by FHA would enable it to seek indemnification from all classes of FHA approved lenders, terminate mortgagee approvals on a national basis and revise the compare ratio statute to provide agility to FHA in lender monitoring.

FHA is also seeking tools to enable it to more efficiently acquire the resources necessary to monitor its portfolio. In addition, it seeks congressional support to help it facilitate servicing by specialty servicers, which would assist borrowers and cut costs to the insurance fund.

Federal Housing Commissioner Carol Galante noted in HUD's statement that FHA was partly responsible for the recovery in the economy and the housing market.

read FHA Annual Report to Congress

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