Report to Congress Shows HECM Program Becomes Self Sustaining in 2011

A new report to Congress shows the Federal Housing Administration’s Mutual Mortgage Insurance Fund is sustaining significant losses from loans insured prior to 2009.

While its capital reserve ratio fell from 0.53 percent in 2009 to 0.50 percent in 2010 − below the congressionally mandated threshold of two percent − the report concludes that conservative assumptions of future growth of home prices will help FHA’s capital ratio approach two percent in 2014 and exceed the statutory requirement in 2015.

“It’s clear that FHA is in a stronger position today than we were just one year ago,” said FHA Commissioner David H. Stevens. “While we are not yet completely out of the woods, based on the evidence we’re seeing, FHA is weathering the economic storm while helping to create a firm foundation for our nation’s recovery.”

The difference is primarily attributed to the use of much more conservative assumptions regarding future house price growth than were used last year, which also resulted in an $8.5 billion decrease in economic value said the report.  However, that decrease was offset by a variety of factors, including an $8.7 billion increase in value due to better credit quality, loan performance, and the premium increase implemented earlier this year.


According to the report, the HECM program’s capital ratio fell from 3.17% in 2009 to -0.98 in 2010, causing a net decrease in the overall MMI Fund capital ratio. This is mostly due to conservative house price forecasts that show FY 2009 and FY 2010 reverse mortgage endorsements will not perform as well as previously reported.

“The remaining negative economic net worth for HECM ($503 million) is a result of actuarial projections that the FY 2010 book will itself not break even,” said the report.

The transfer of $1.74 billion from the capital reserve account of the MMI Single Family program to cover the expected net loss of the HECM FY 2009 book of business.  The change in house price forecasts also reduced the economic value of HECM loans by $3.9 billion.  However, recent changes made by HUD to raise the annual premium for reverse mortgages and the release of the HECM Saver will help turn the program around.

“Starting in FY 2011, the actuarial estimates are that each new HECM book will generate net income for the MMI fund and that the HECM portfolio will itself be providing more than two percent capital – per the statutory definition – in just two more years,” said the report.

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