FHA found financial footing – ready for more buyers

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WASHINGTON – Nov. 16, 2016 – The Federal Housing Administration’s (FHA) latest actuarial report finds that it’s on firm financial footing after its reserves fell below federally mandated levels during the Great Recession. As a result, the National Association of Realtors® (NAR) released a statement saying it’s on solid ground and a continued resource to help buyers secure their dream home.

Since the FHA’s Mutual Mortgage Insurance Fund (MMIF) is on a steady financial trajectory, NAR “believes is an opportunity to make FHA’s low-downpayment mortgage option available to an even broader swath of borrowers.”

“The fund has indisputably found its footing,” says NAR President William E. Brown. “That’s good news for taxpayers, and a reflection of FHA’s sound stewardship. It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”

FHA’s MMIF is the pot of money that pays lenders if a homeowner defaults on his mortgage. FHA’s 2016 Annual Report Shows report found that the fund’s “seriously delinquent” rate is at a ten-year low, and the overall economic value of the fund increased by $3.8 billion.

Last year, the MMIF also achieved a capital reserve ratio higher than 2 percent, the minimum mandated reserve ratio under federal law; it now stands at 2.32 percent. It’s only the second time since 2008 that the MMIF exceeded the congressionally required threshold. FHA also reported a 3.2 percent reserve ratio for the “forward” program, which encompasses FHA’s non-Home Equity Conversion Mortgage portfolio.

NAR believes the report would have appeared even stronger if not for weaknesses in its reverse mortgage program – Home Equity Conversion Mortgage or HECM.

In light of the MMIF’s increasingly good health, NAR is encouraging FHA to reduce mortgage insurance premiums to better reflect the risk in the marketplace and fulfill its mission of serving low- and moderate-income borrowers.

According to NAR, the 50-basis-point premium cut announced in January 2015 provided an annual savings of $900 for nearly 2 million FHA homeowners. A recent Federal Reserve study also found that the January 2015 reduction in mortgage insurance premiums had a quick and significant effect on FHA mortgage volume.

However, NAR also recommends additional changes to FHA’s lending program. One major recommendation: Eliminate the “life of loan” mortgage insurance that borrowers must continue to pay until the loan is extinguished or refinanced. Conventional mortgage products traditionally require mortgage insurance only a home reaches a specific level of equity, but FHA loans have no similar mortgage-loan-insurance cutoff date.

“FHA mortgages are an important option for buyers, but high premiums and lifetime insurance requirements can take that option right off the table,” Brown says. “By lowering premiums and eliminating life of loan mortgage insurance, FHA can expand on their work to serve a broad population of homebuyers. We look forward to working with them in the months ahead to bring these changes to light.”

© 2016 Florida Realtors®

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