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The Government Accountability Office said economic and market conditions led to declines in the Federal Housing Administration's mutual mortgage insurance fund "to a level below the statutory minimum" of 2%. Testifying before the Senate Committee on Banking, Housing, and Urban Affairs, Mathew Scire, director of the GAO financial markets and community investment division said the ratio slipped to 0.51% for fiscal 2009. The GAO also said the number of insurance claims and the losses associated with the claims exceeded projections reducing the fund's economic value. Meanwhile, higher demand for FHA-insured mortgages increased the agency's insurance-in-force. FHA has outlined a number of steps to help improve the fund, including adjustments to insurance premiums and underwriting policies. But legislative requirements provide limited direction to the agency, according to the GAO. The FHA plans to closely monitor the performance of agency-insured mortgages written in 2009, which the GAO expects will "have a major influence on the fund's financial condition because of its large size, but it is too early to tell whether it will perform to FHA's expectations." The GAO recommends the Department of Housing and Urban Development require the FHA review contractor to use stochastic simulation of economic conditions to estimate the fund's capital ratio and include the results in the FHA's annual report to Congress on the status of the fund. The GAO also wants Congress to consider establishing a minimum timeframe for restoring the capital ratio of the fund to 2% while clarifying numerous provisions concerning the FHA's administration of the Fund. Write to Jason Philyaw.

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