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Review finds FHA mortgage insurance fund short $13.5 billion

An audit of the financial situation at the Federal Housing Administration finds the mutual mortgage insurance fund is short a projected $13.48 billion.

The FHA will likely ask Congress to petition the Treasury to make up the shortfall.

The fund essentially insures home loan payments for lenders in cases of default, and the FHA insurance book currently covers $1.13 trillion in unamoratized insurance in force. 

Considering this, independent auditor Integrated Financial Engineering Group expects the fund to be in better health in the years to come. By 2019, it could reach positive $54.25 billion, according to the report

Still, the new projected loss is down $14.67 billion from 2011 when the insurance fund held an overall economic value of $1.19 billion.

The FHA estimates the fund will have $25.57 billion of capital resources by the end of this year. The present value of future cash flow is a negative $29.05 billion. As a result, the fund is projected to have a negative $13.48 billion in economic value.

Under one of the more unlikely test scenarios, there is a 5% chance the fund's capital resources could turn negative in the next seven years, the auditor said. And when deploying a more pessimistic and unlikely testing scenario, the fund could remain negative until fiscal year 2019.   

The current cumulative home price analyzer is negative 14.5%, and the forecasted HPA for 2019 is 8%. According to the House Price Index forecast, the cumulative HPA will turn positive in 2017, at 1.3%. 

The estimated market origination volume for this year is $212 billion. Any forecast of future FHA edorsements will depend on mortgage lenders, private mortgage insurers and Fannie Mae and Freddie Mac

The fiscal year 2012 book of business is expected to contribute about $11.92 billion to the Fund's economic value. The value will continue to increase by $9.68 billion per year through 2019.

IFEG projects the FHA to endorse $211.74 billion in single-family foward mortgages by the end of the year.

For the partial fiscal year, FHA share by loan count reached 15.78% while its share by dollar volume hit 12.16%. 

cmlynski@housingwire.com

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