FHA insurance fund records sizable gains

The Federal Housing Administration (FHA) insurance fund is in its best shape since the last housing boom, according to the U.S. Department of Housing and Urban Development (HUD).

The fund’s capital ratio stood at 4.84% in fiscal year 2019, which ended this past September. For the fifth straight year, that figure exceeded the 2% minimum threshold required by Congress. The capital-ratio metric, which estimates the fund’s net worth and ability to cover future claims, has increased to its highest level since 2007 after several strong years of home-price growth and steady mortgage performance in this economic cycle, HUD reported.

The capital ratio increased by 2.08% in the 12-month period through September and stood at the highest level since fiscal year 2007 when it reached 7%, according to HUD.

FHA forward mortgages, which comprise the vast majority of insured mortgages, continue to bolster the fortunes of the overall fund. The capital ratio for forward mortgages was 5.88% in fiscal year 2019, an increase from 3.93% in fiscal year 2018.

HUD’s portfolio of Home Equity Conversion Mortgages (HECMs) were a drag on the overall fund in the past year, although less so than in previous years. The capital ratio of insured reverse mortgages stood at negative 9.22% in fiscal year 2019, which was an improvement compared to the negative 18.8% ratio for reverse mortgages in fiscal year 2018.

HUD also reported that the FHA share of the U.S. mortgage market declined compared to other loan types. FHA loans comprised 11.4% of all mortgages, down from 12.3% in fiscal year 2018 and well below their peak of a nearly 18% market share in 2009.

Reacting to the strong performance of FHA forward mortgages, the Community Home Lenders Association, a nonbank trade group, called on HUD to eliminate an Obama-era rule that requires FHA borrowers to carry insurance for the full term of a loan.

The Mortgage Bankers Association (MBA), however, urged HUD to proceed with caution.

“The fund’s capital ratio, which is now more than twice the statutory minimum, indicates that HUD’s policy changes over the last few years have had their intended effect of stabilizing the fund and rebuilding reserves in order to prepare for any future downturns,” MBA President Robert Broeksmit said.

“We encourage HUD to closely monitor risks to the fund, including the layering of risks that could contribute to future defaults, as well as oft-cited challenges associated with the HECM program,” Broeksmit said. “MBA urges HUD to continue to address extreme risk layering quickly to protect the core of the program, while also exploring ways to ensure that premium levels for forward mortgages are not adversely impacted by the challenges in the HECM program.”


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