FHA Report: HECM Program Performing Better Than Previously Reported

Mortgages insured by the Federal Housing Administration have performed better than expected during the fiscal year, though the improvements could be overturned if home prices sink, according to a report the agency submitted to Congress.

According to the Washington Post, FHA collected more money than it disbursed in the nine months ended June 30, for a net increase of $446 million. It concluded that FHA loans are holding up better than the audit had predicted on many fronts, in part because the agency has attracted more creditworthy borrowers and rooted out fraudulent lenders.

But the report did not update the excess cash reserves calculated in last year’s audit. Those were about $3.6 billion as of Sept. 30. That represented about 0.53 percent of all outstanding single-family home loans insured by the agency — well below the 2 percent required by law. A new audit is due later this year.

The report also shows that FHA’s reverse mortgage program (HECM) is performing better than previously reported.  While FHA says that insurance of reverse mortgages is down substantially this calendar year, the HECM program has operated under a -0.50 percent credit subsidy rate since October 1, 2009.  However, quarterly reports to Congress for FY 2010 Q1 and Q2 mistakenly reported this as -0.05 percent.

Credit subsidy rates are the expected net present value, per dollar of new insurance endorsements, of all cash flows from insurance operations over the life of the loan guarantees, and as-of the year of the insurance commitments.  Loans with negative credit subsidies are expected to produce receipts for the Federal budget.

Despite the report showing the HECM program being cash flow being positive, the Office of Management and Budget requested a $250 million subsidy for the FY 2011.  During the appropriations process, appropriators said $150 million would be enough to will keep the program running in 2011 at expected volume levels.

The House of Representatives provided $140 million for the HECM program, while the Senate has yet to pass a FY 2011 appropriation bill for HUD.

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