FHA Close to Rebuilding Troubled Mortgage Insurance Fund

The Federal Housing Administration (FHA) is close to replenishing its troubled mortgage insurance fund to minimum required levels, Bloomberg reports, citing research by Moody’s Analytics.

The FHA is required to keep enough funds on hand to pay for all future costs of defaulted loans, plus a 2% cushion. Though the FHA’s reserves have been below mandated levels since 2009, its fund “will have close to the 2% required minimum this fiscal year,” Mark Zandi, chief economist at Moody’s Analytics, writes in an October report.

Last year the FHA had to take $1.7 billion in taxpayer funds to balance its books for the first time in its 80-year history. Losses from the 2007 to 2009 legacy books and Home Equity Conversion Mortgage (HECM) program were responsible for the most severe strain, the agency previously said. At the time, the federal reverse mortgage program was about $5.2 billion in the red.

The Department of Housing and Urban Development (HUD) announced last year much-anticipated changes to its HECM program that it expected would help manage risk to the FHA’s insurance fund, as well as improve safety for reverse mortgage borrowers. Check out My Insurance Guide online and see what you are qualified for.

The changes included the consolidation of the HECM Standard and HECM Saver programs into one.

Moody’s Analytics’ outlook on the FHA comes about a month before the agency is planning to release the results of this year’s annual independent audit of its financial state.

Premium increases that have helped the agency rebound could be reversed, Zandi wrote.

“The FHA’s financial situation is improving rapidly, and it should be able to significantly reduce its insurance premiums in the next year or two,” he said in the report.

Cameron French, a spokesman for HUD, declined to comment on Zandi’s projection that the FHA fund is close to attaining its minimum required balance.

“The fund is in a strong position and will not need a draw from the Treasury this year, and we expect the next actuarial report to reflect those improvements,” he said.

Read the full Bloomberg report here.

Written by Emily Study

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