Value Of FHA Insurance Fund Down, What Does It Mean For Reverse Mortgages?

imageI know that there are plenty of people who wish the Federal Housing Administration would lower the 2% upfront premium for HECMs, but it doesn’t look like it will happen anytime soon.   Yesterday, the Wall Street Journal published an article about how the latest annual audit of FHA shows a steep drop in the capital cushion the US agency holds against losses from mortgage defaults. 

The audit, prepared by Integrated Financial Engineering Inc., estimated the economic value of the FHA’s insurance fund was $12.9 billion as of Sept. 30, down 39% from a year earlier.  According to the WSJ, the drop in economic value of the fund largely reflects estimates of how falling home prices and growing losses on the sale of foreclosed homes will increase claims paid by the FHA.

As of Sept. 30, the estimated value of the fund worked out to 3% of the total loans insured by FHA, down from 6.4% a year ago.  Federal law requires that the value be at least 2%, so if it should run short of money to any claims, US taxpayer funds would be used to make up the difference.


Thomas Lawler, an independent housing economist based in Leesburg, Va., said he sees a risk that losses on FHA loans will be large enough to require Congress to replenish the reserves.  Stephen O’Halloran, an FHA spokesman, said the insurance fund "remains on solid ground."

FHA Cash Cushion Has Fallen by 39%

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  • I always thought that the FHA insurance fund for reverse mortgages were not the same as Regular FHA. seniors pay 2% while FHA purchase charge 1.50% seniors get cheated again same as social security money being used for other purpose’s. Same with counseling fee’s no cost if your purchasing or refiancing a forward mortgage.

  • I would only agree that “HECM insured mortgages are in a shaky position” if the amount available to folks was a higher percentage and if there weren’t FHA limits (all of which wouldn’t be prudent).

    I highly doubt that FHA has paid or even anticipates many HECM losses, but that is simply my speculation.

  • most seniors are taking out a monthly income so this way seniors will be able to pay back what they owe. except in cases where Insurance people and investors have talked people into taking all the cash and there is no equity left. Banks should question motives for taking out the cash. Money was you to better their life style.

  • mrreverse,

    I guarantee most seniors with reverse mortgages are not taking monthly income? You comment is crazy. I would guarantee in percentages most are doing the line of credit. In addition to your comment you mention banks should question motives for taking all cash? Is it the banks money or the seniors money? It is not your business or the banks business as to what the senior is doing with there own money. Its there equity they can do whatever they choose so stay out of it.

    FHA is paying out the MIP in areas hard hit by home values. Not enough to justify the 2% they charge in addition to the .5% on the outstanding balance but they are definately paying money out.

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