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FHA MMIF Capital Ratio Deteriorates

FHA News

Following four straight years of improvement, the Mutual Mortgage Insurance Fund’s capital ratio deteriorated. No reduction in premiums is likely as reverse mortgages continue to be a problem.

In its annual report to Congress, the Federal Housing Administration revealed a $25.6 billion economic net worth for its MMIF at the end of fiscal-year 2017. That left the capital ratio at 2.09 percent.

By law, the capital ratio needs to be at least 2 percent of the $1.23 trillion insurance in force.
It was the third consecutive year the ratio was above 2 percent.

But while the ratio remains at the statutorily required level,
it declined from 2.35 percent in fiscal-year 2016.

The latest ratio is 3.33 percent when home-equity conversion mortgages are excluded. But the negative 19.84 percent capital ratio on the HECM portfolio hurt the overall rate. Recently implemented changes to M.I. premiums, principal limit factors and new servicing requirements are intended to remedy the HECM program.

It is clear that FHA mortgage insurance premiums won’t be reduced anytime soon.

“Immediately upon taking office, the Trump administration indefinitely suspended a scheduled reduction in FHA’s annual forward mortgage insurance premiums as the agency assessed the economic impact on the MMI Fund,” the report states. “The 2017 annual report concludes that had this premium reduction taken effect in January, the MMI Fund’s capital ratio would have fallen to 1.76 percent (below the statutory minimum) resulting from a net reduction in cash flows of $3.2 billion and an increase in insurance in force of $45 billion.”

Mortgage Bankers Association President and Chief Executive Officer David H. Stevens called the Trump administration “wise to reverse the MIP reduction made in the last days of the previous administration.” He
commended FHA for working towards improving the value of the MMIF.

He also called on policymakers and Congress to evaluate whether the HECM program should even be included in the fund going forward.

“Removing it 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,” Stevens said.

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