HUD Chief Says FHA Insurance Fund Looks OK, Barring Second Recession

Are there any surprises in store for the annual actuarial review of FHA’s Mutual Mortgage Insurance Fund? Not likely, Department of Housing and Urban Development Secretary Shaun Donovan told Mortgage Bankers Association Conference attendees in Chicago, on Tuesday.

When asked if there is any indication what the study will reveal, Donovan seemed optimistic.

“The quality of our book continues to be really remarkable,” Donovan said. “Just to take the third quarter alone, the loans we made in the third quarter we estimate will add about $1.7 billion of value to the FHA fund.”

The report, which is typically released in October and has a deadline of November 15, 2011, has the strong potential to direct future changes to the Home Equity Conversion Mortgage program.

The HECM portion of the MMI fund at the end of FY 2010 was estimated to be negative $503 million with a projected value of $83 million for FY 2011.

The negative value in 2010 led to program changes including a raise of HECM insurance premiums and the introduction of the HECM Saver, which was hoped to offset any potential losses.

While he did not note any HECM specifics, Donovan noted slower prepayment speeds as helping the strength of the fund overall. For the things that FHA directly controls, he said, expectations continue to be exceeded. The unknown, however, is home price projections. The capital cushion of the MMI fund has fallen below what Congress requires. While it is still positive, it is below the threshold Congress has set.

“The wild card is where to projections around home prices end up,” Donovan said. Home prices, down 30% or more in some areas, could drag the fund down, even though new loans

Ultimately, however, the expectation for the report findings is positive.

“It would take a dramatic second recession to push the FHA into a negative capital position when you project [the] new loans going forward…I would expect barring some major change that we will continue to see an actuarial report that shows the FHA fairly close to that balance, hopefully staying somewhat positive,” he said.

Written by Elizabeth Ecker

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