The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) noted in a briefing on Tuesday that it managed to record another banner year for the Mutual Mortgage Insurance (MMI) Fund.
The FHA’s MMI Fund achieved a capital reserve ratio of 11.11% as of September 30, an increase of three percentage points compared to 2021, according to FHA’s Annual Report to Congress, released on Tuesday morning. This marks the seventh consecutive year the ratio has exceeded its 2% statutory minimum.
Favorable factors, diminished concerns
While the Mortgage Bankers Association recently urged the White House and the FHA to cut mortgage insurance premiums (MIPs), FHA Commissioner Julia Gordon indicated at the start of Tuesday’s call that there would be no announcements related to mortgage insurance premium changes.
“We are not announcing a mortgage insurance premium change today,” Gordon said. “I have spoken about that on numerous occasions, and I hope you’re all aware by now that any changes to the MIP would not occur before the fiscal year 2023 budget is in place.”
The FHA’s MMI Fund benefited in 2022 from some of the same macroeconomic housing market factors that led to last year’s favorable MMI Fund performance, including the continuation of historic levels of home price appreciation (HPA).
The FHA also noted in the report that one of last year’s more serious concerns had been diminished.
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“FHA’s serious delinquency rate as of September 30, 2022 was 4.77%,” the FHA said in a statement. “This is a decrease of four percentage points in just one year and a reduction of more than seven percentage points from the peak of 11.90% experienced in November 2020.”
The elevated delinquency rate in 2020 and 2021 was exacerbated by the COVID-19 coronavirus pandemic, a period in which more than 2 million FHA borrowers were delinquent on their mortgages.
However, the wide availability of pandemic-related loss mitigation options had a direct impact on that number, according to the report.
“Over 1.8 million FHA borrowers took advantage of FHA’s COVID-19 forbearance offering, which permitted borrowers to postpone making their mortgage payments,” the report states. “This forbearance provided financial assistance and peace of mind through a very stressful period.”
An estimated 400,000 borrowers requested a pandemic-related loss mitigation option in FY 2022 alone, in addition to the 1.4 million borrowers who requested such relief from the onset of the pandemic in early 2020.
Emerging and risky economic trends
Still, there are emerging economic trends that have the potential to disrupt the gains made in the Fund in the coming years, according to the report.
“Rising inflation could negatively impact HPA growth in the near term,” the report states. “The Consumer Price Index has been at least 8% since the second quarter of FY 2022, an elevation that has prompted the Federal Reserve to execute a series of 75 basis point increases to short-term rates throughout the year.”
The rate increases have led to concerns that the Federal Reserve could trigger a recession as it tries to tame inflation. In order to guard against future losses, some of the country’s largest depository institutions having built up their reserves, per the report.
“[This is] a sign of concern that elevated inflation, rising interest rates and the possibility of higher unemployment in the future could stress borrowers’ ability to pay,” the report notes.
Mortgage Bankers Association (MBA) President Bob Broeksmit said the report reflects a “very healthy” FHA program, but that more needs to be done.
“Given FHA’s healthy financial position, MBA continues to believe that HUD should make FHA loans more affordable by reducing mortgage insurance premiums as soon as budgetary opportunities allow,” Broeksmit said. “This move would help offset the impact of higher mortgage rates and improve the purchasing power for many prospective first-time homebuyers, minority buyers, and those with low and moderate incomes.”
The Community Home Lenders of America (CHLA) also weighed in, noting that premium cuts should be a priority.
“[CHLA] renews its longstanding call for FHA to cut annual premiums and end its Life of Loan policy, in the wake of today’s MMIF financial report showing growing reserves and Net worth more than 5.5 times its statutory requirement,” a CHLA spokesperson said. “CHLA appreciates the technical budget scoring issues raised by cutting premiums – but the doubling of mortgage rates since the start of this year makes these actions more critical than ever.”