The Federal Housing Administration broke a few hearts last year when it announced back in November that there would not be any cuts to its mortgage insurance premiums after its flagship insurance fund turned in a weaker-than-expected performance in fiscal year 2017.
Those holding out hope for a cut to the FHA’s MI premiums this year should not be holding their breath, the FHA’s newly minted commissioner said Tuesday.
Speaking with a group of reporters, FHA Commissioner Brian Montgomery said Tuesday that while it’s probably “too early to commit to anything,” it’s unlikely that the FHA will reduce its MI premiums this year.
Montgomery cited the FHA’s most recent actuarial report, which gives insight into the health of the Mutual Mortgage Insurance Fund, the FHA’s flagship insurance fund, as an indication of why no MI cuts are likely coming in 2018.
Last year’s report showed that the key figure in the health of the MMI Fund, its capital ratio, remained above the congressionally mandated threshold of 2%, but declined in fiscal 2017 from where it was in the previous year.
According to the FHA, the MMI Fund’s economic net worth fell $1.9 billion and the capital ratio declined from 2.35% in 2016 to 2.09% in 2017. The decline marked the first time in five years that the MMI Fund’s capital ratio fell.
At the time of the report’s release, Adolfo Marzol, Senior Advisor to Department of Housing and Urban Development Secretary Ben Carson, told reporters that the decrease in the FHA’s reverse mortgage portfolio more than offset an increase in forward mortgages in 2017, which led to the decline in the overall capital ratio.
The FHA’s reverse mortgage portfolio is volatile and has swung back and forth between making money and losing money in the last several years.
In 2016, the MMI Fund reported its fourth straight year of growth, with much of the growth being driven by the FHA’s forward mortgage business, rather than the reverse mortgage business as it had been in 2015.
In 2015, the MMI Fund finally reached its congressionally mandated threshold of 2%, reaching that level for the first time since 2008.
That achievement came as a bit of surprise, considering that many thought that a 50-basis-point cut of the FHA annual mortgage insurance premiums, which the Obama administration announced in early 2015, would negatively affect the health of the MMI Fund.
That didn’t come to pass and the fund got healthier, leading to the Obama administration announcing an additional MI premium cut just before leaving office in 2016.
Under the Obama administration plan, the FHA would have cut the annual mortgage insurance premiums for most borrowers by one-quarter of a percentage point, or 25 basis points.
The cut was due to take effect on Jan. 27. 2017, but in the opening moments of President Donald Trump’s term in office, his administration announced the suspension of the previously announced reduction to FHA mortgage insurance premiums.
Throughout 2017, there were some rumblings that the FHA would reinstate the mortgage insurance premium cut based on the relative health of the MMI Fund, but the fund’s performance suffered in 2017, and no cut came.
And Montgomery said Tuesday not to expect a cut in the near future.
As Montgomery noted, if the Obama administration insurance premium cut had been allowed to take effect, the MMI Fund would have performed much worse in 2017 than it did.
The FHA 2017 Annual Report shows that had the premium reduction gone through as planned, the MMI Fund’s capital ratio would have fallen to 1.76%, below the congressionally mandated minimum.
“It’s probably too early to commit to anything. I would say that if you looked at the actuarial report, the most recent report, had that premium cut gone through, it would have decidedly put us below the 2% ratio,” Montgomery said in response to a question about potential MI premium cuts.
“So that sort of presages this year,” Montgomery said. “You probably know your answer. I mean, anything’s on the table, but I don’t know that that’s the direction we’re going to head this go-round.”
Montgomery, who’s been in place at the FHA for just over a month, said that the FHA is in “heavy triage” on both the FHA’s forward and reverse mortgage book, looking over the full portfolio to identify deficiencies or potential issues.
Included in that review are issues facing the FHA’s reverse mortgage program. Montgomery said that the FHA is working to stabilize the program and avoid the wild swings in profitability that took place in recent years.
Montgomery said that the FHA has discussed lowering premiums, among other options, during his brief time there, but said that those were simply discussions and no plans are in place to make any changes.
The goal, according to Montgomery, is to ensure that the FHA is “viable and here for generations to come.”