FHA Report Shows Strong Agency Turnaround, Insurance Fund Improvement

The Federal Housing Administration’s mutual mortgage insurance fund showed strong improvement in 2013, according to an annual independent actuarial review of the fund released Friday.

The fund gained $15 billion in value over the course of fiscal year 2013, from negative $16.3 billion to negative $1.3 billion, a strong improvement over the past year. The agency’s capital reserve ratio also shot up from negative 1.44% to negative 0.33%, nearing positive territory earlier than expected based on last year’s report.

The reverse mortgage portfolio showed similar improvement and is now fully capitalized, having gained $9 billion in value during the year, from a negative net value of $16.1 billion to a net present value of negative $5.5 billion. A transfer from the forward portfolio as well as a treasury draw led to the the current net worth estimate.

“The HECM portfolio is now fully capitalized and is on an increasingly sustainable path moving forward,” FHA noted in its summary of the findings.

Independent actuaries who authored the report project continued improvement in the reverse mortgage portfolio, and in the fund overall, based on economic recovery and policy improvements, with FHA expected to meet its capital reserve requirement of 2% in 2015. The report was received positively by FHA officials as well as mortgage market participants who pointed to policy measures and improving home values as driving the health of the fund forward.

“What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” said Secretary Donovan in response to the report. “We look to the future and remain committed to continuing our progress to strengthen the MMI Fund so that ladders of opportunity are available to all Americans for generations to come.”

The report pointed to several changes in particlar that helped drive the health of the fund including a low level of early payment defaults; an 18% drop in serious delinquency rates and 20% drop in foreclosure starts; and FHA REO recovery rates up 28% from December 2012.

“As the value of the Fund continues to improve, FHA will make every effort to maintain this positive momentum while simultaneously ensuring qualified borrowers in underserved markets can responsibly access mortgage credit,” said FHA Commissioner Carol Galante. “Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit. The fact that economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”

Several changes are still being considered, HUD noted, including indemnification efforts and authority to terminate lenders on a national basis, among others.

HECM program changes are leading to improvement in the reverse mortgage portfolio, the actuaries noted.

“The positive projected economic values of future books of business are attributable in part to recent and forthcoming HECM program changes, which are expected to improve loan performance,” they write in the report. “However, if the volume of HECM endorsements over the next seven years is lower than projected, the economic value of future HECM portfolios will be lower than projected. Additionally, if macroeconomic conditions are worse than forecasted, the economic values of future HECM portfolios will be lower than projected.”

Written by Elizabeth Ecker

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