The Federal Housing Administration, which in September received a first-ever $1.7 billion bailout from the U.S. Treasury, said an audit of its finances has found it still faces a $1.3 billion capital shortfall.
The independent actuarial report shows that FHA’s Mutual Mortgage Insurance Fund (MMIF) has gained $15 billion dollars in value over the last year and now stands at negative $1.3 billion. The current capital ratio is negative 0.11 percent. The actuary anticipates that the Fund will return to the required two percent capital reserve ratio in 2015, two years sooner than projected last year. Meanwhile, FHA maintains over $48 billion in liquid assets to pay expected claims.
“Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit,” said Carol Galante, the FHA Commissioner, in a prepared statement.
The independent actuarial report identified several factors as drivers for the improvement in FHA’s position compared to last year, including:
- Early payment delinquency rates are at their lowest levels in seven years which shows that changes in credit and underwriting policy have improved the performance of the newest books of business.
- An 18 percent drop in serious delinquency rates and a 20 percent drop in foreclosures starts as a result of enhanced loss mitigations policies.
- FHA REO recovery rates up 28 percent from last December, and this figure does not account for the future impact of FHA’s new streamlined short sale program which was launched in July.
The report makes clear that the steps the Administration has taken to improve the health of the Fund are beginning to take hold and we are starting to turn the page on the financial crisis that brought many institutions to their knees. These actions include tightened credit standards, adjustments to premiums, and improved and expanded use of loss mitigation and REO alternatives all while protecting access to affordable credit for qualified borrowers.
In September, the FHA’s head told Congress the agency needed bailout money to stabilize its long-term finances and cover potential losses on the huge volume of low-down payment subprime mortgage it insured from 2007 to 2009. The September bailout was the first time the 79-year-old FHA — created during the Great Depression to keep home lending flowing — required taxpayer funding.
The FHA does not make loans but instead insures lenders against home loan losses.
However, FHA continues to seek a number of legislative changes to build upon this momentum. These include:
- Ability to seek indemnification from all classes of FHA approved lenders;
- Authority to terminate lender approval on a national, instead of regional, basis;
- Revision of the compare ratio statute, to provide agility to FHA in lender monitoring;
- Tools to enable FHA to more efficiently acquire the resources necessary to monitor its portfolio and
- Facilitating servicing by specialty servicers, which assists borrowers and ultimately reduces costs to the Fund.
Through the coming years, FHA will continue to focus on protecting and improving the performance of the Fund – playing its critical role of ensuring access to credit for qualified borrowers in underserved markets.
The FHA is financed by mortgage insurance premiums charged to homeowners and has been self-sustaining through its history. The FHA insures a portfolio of over $1 trillion in mortgages. Since the housing market collapse in 2007, it increased its share of the home loan market, more than tripling its loan portfolio. The agency now insures almost one-third of all U.S. mortgages, up from about 5 percent in 2006.
In February, when the Obama administration releases its annual budget, the administration will determine whether the FHA will need to access its Treasury credit line.