The Federal Housing Administration’s flagship Mutual Mortgage Insurance (MMI) Fund is in the best condition since before the financial crisis with a combined capital ratio for FY 2020 at 6.1% – only .3% away from levels seen in 2007.
Under the National Housing Act, the FHA is required by Congress to maintain at least a 2% ratio in reserves for the MMI fund, which it has done now for the sixth consecutive year.
Dana Wade, FHA commissioner and assistant secretary for the Department of Housing and Urban Development, spoke to HousingWire Digital Producer Alcynna Lloyd in an exclusive interview and gave her perspective on the annual report.
“It’s kind of like the Super Bowl for FHA, or at least for those nerdy enough to pay attention to this,” Wade said.
Up from 4.84% in 2019, Wade said robust housing values and the growth in house price appreciation was not only a bright spot for the housing community, but a driving factor in the 1.26% year-over-year increase the MMI fund experienced.
“I think the fact that homeowners are seeing so much equity appreciation is great for them. It’s also been great for the FHA. But I will say that, besides house price appreciation, we also made some really good calls at the beginning of this administration to ensure that the premiums were at the right level to build capital – we did not bring them down,” Wade told Lloyd.
“As a result, we have capital to face these challenges. We did a lot of things also to put in place needed fiscal reforms for the reverse mortgage portfolio and I think if you take all the actions that we’ve put in place, and put them all together, it’s really had a positive impact on the capitalization of the fund, which is a great thing for taxpayers that stand behind the FHA.”
MMI fund capital for the forward mortgage portfolio now stands at $77.8 billion, an increase of $12.2 billion over 2019’s fiscal year. This translates to a stand-alone MMI Fund Capital Ratio for the forward portfolio of 6.31% for 2020, an increase from 5.44% in 2019.
The FHA hit another milestone in 2020 as well after reporting that forward mortgages insured for first-time homebuyers reached a new high of 83.1%. According to Wade, first-time homebuyers are their “bread and butter.”
“It’s a good thing. Because a lot of borrowers and folks who were renters before were likely thinking ‘now is a time to move into an area where I have a backyard or something safer and I’m spending a lot of time at home.’ I think a lot of those borrowers, with low to moderate income, may not have the traditional down payment and have turned to the FHA,” Wade told Lloyd.
The positive growth is a far cry from the tumult of 2017, a year the MMI fund declined to 2.09% from 2.35% the previous year. At the time, there was speculation of HUD announcing a cut to FHA mortgage insurance premiums.
The cut was due to take effect on Jan. 27. 2017 under the Obama administration, 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.
However, this year, Wade said that HUD and the FHA under secretary Ben Carson were able to react swiftly at the beginning of the pandemic – which led to the overall success of 2020.
Wade also mentioned the improvements to credit quality in the FHA books, and said credit overlays have not hampered credit availability.
“We’ve continued to provide, record percentage of loans to first-time homebuyers and we are very strong in providing credit opportunities to minority borrowers,” Wade said to Lloyd. “When you look at the credit market overall, there has been a little bit of tightening. But we all know that COVID is temporary and I suspect that will reverse as soon as we get out of this pandemic.”
With 2021 right around the corner, Wade said the FHA will be shifting its focus to servicing loans that are exiting forbearance.
In October, the FHA extended its deadline for single-family homeowners to request forbearance through Dec. 31, 2020 – the same day its foreclosure moratorium is also set to expire.
Because the FHA requires mortgage servicers to provide up to six months of COVID-19 forbearance when a homeowner requests this assistance, and up to an additional six months of forbearance for homeowners who request an extension of the initial forbearance, this means some borrowers may not exit forbearance until the end of 2021.
Approximately 7.95% of FHA loans were in some form of forbearance plan as of Nov. 9, according to the Mortgage Bankers Association.
“We’ve got about an 11.5% rate of serious delinquencies. The FHA has to continue to focus on that population of borrowers and making sure as many of these borrowers can be cured and stay in their home,” Wade said to Lloyd. “We need to make sure these borrowers can get whatever assistance is needed to sustain mortgage payments.”
To Wade, a lot of what’s in store will depend heavily on the economic environment, including the job market and the potential of an additional COVID-related stimulus package from Congress.
“But I think with COVID being temporary, there are a lot of reasons to be hopeful,” Wade told Lloyd. “The FHA certainly has a lot of work ahead of it, but I’m very positive about the future.”