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FHA MMI Fund Improves 4th Consecutive Year

For the fourth year in a row, the capital position of the Federal Housing Administration’s mortgage insurance fund has shown improvement.

After growing by $3.8 billion, the economic value of FHA’s
Mutual Mortgage Insurance Fund concluded fiscal-year 2016 at $27.6 billion.

That left the MMI fund’s capital ratio at 2.32 percent.
Congress has mandated that the capital ratio be maintained at a minimum of 2 percent.

Those details were presented in the
annual report to Congress on the financial condition of the MMI fund released Tuesday by the Department of Housing and Urban Development.

The capital ratio improved from the previous fiscal year, when it was 2.07 percent.
It was the fourth consecutive year that the net worth of the MMI fund has increased.

The report was prepared based on an
independent actuarial analysis.

“FHA has come a long way since our housing crisis,” HUD Principal Deputy Assistant Secretary for Housing Ed Golding stated in an accompanying announcement. “With evidence that FHA’s fundamentals are strong and improving, there is no doubt that FHA is making steady progress accumulating capital and, at the same time, improving access to credit for working families.”

But despite the improvement, there are no reductions planned for FHA mortgage insurance premiums.

Data previously reported by HUD indicates that FHA insurance was in force on $1.25 trillion in residential loans — including single-family loans, home-equity conversion mortgages and Title I loans — as of Aug. 31.

Mortgage Bankers Association President and Chief Executive Officer David H. Stevens issued a statement commending FHA’s leadership for taking steps to improve the value of the MMI fund.

But Stevens, who previously served as Federal Housing Commissioner in the Obama administration, cautioned about reverse mortgage risk.

“An important subtext to this report is the continued volatility in the HECM book of business, which this year turned negative, dragging down the overall value of the MMIF,” he stated. “Given the importance of FHA to low and moderate income and first time homebuyers, the next administration may want to look at accounting for the two programs individually in order to isolate the critically important forward book from the wild swings of the HECM fund.”

Stevens added that before any reduction in FHA fees is made, the volatility of the HECM book needs to be factored into such a decision.

The U.S. Mortgage Insurers, an association that represents competitors to FHA mortgage insurance, commented on the disparity between capital standards for FHA and private mortgage insurance companies.

“FHA serves an important counter-cyclical role in the mortgage finance system,” USMI President and Executive Director Lindsey Johnson said in a statement. “Following the financial crisis, FHA’s insured market share grew nearly 300 percent from its pre-crisis market and remains at elevated levels today — and it has taken nearly a decade for the MMIF to recover from serving this countercyclical role. Now that FHA is back to meeting the 2 percent ratio requirement, there is also an opportunity to focus on strengthening FHA’s capital standard, which is dramatically less than what is required of FHA’s private market counterparts, to make the agency more financially resilient going forward. Changes in market conditions, or changes in the very volatile HECM program, could easily push the FHA back into the red.”

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