FHA Official Says Agency Could Need Bailout if Home Prices Keep Tanking

While the Federal Housing Administration’s annual report to Congress, released in November, presented a steady outlook for the home equity conversion mortgage program, the overall analysis of FHA’s Mutual Mortgage Insurance (MMI) Fund showed what could be a precarious situation for the administration’s housing insurance program.

“There is no current evidence for any widespread, sustained home price declines in FYI 2012, but should significant declines happen to occur, it could create a situation in which the MMI Fund would require support from the Treasury,” wrote FHA Acting Housing Commissioner Carol Galante in a letter following the report.

Noting FHA’s possible actions to combat a troubled MMI fund, Galante said FHA can implement policy changes such as premium increases to provide additional support for the fund.


“We continue to keep our options on the table,” Galante wrote.

The report findings indicated that the capital reserve ratio of the fund remains positive at 0.24%, which is still below the Congressionally mandated threshold of 2% capital, she noted.

This is partially due to findings that the FHA is “expected to sustain significant losses” from loans insured pre-2009, according to the report of the actuarial study, causing the capital reserve ratio to decline from 0.50% of the total insurance-in-force in 2010 to the current 0.24%.

However, the actuarial report expects the MMI Fund to return to the Congressionally mandated level at a quicker rate than last year’s projection—barring a further significant downturn in home prices.

Moody’s Analytics predicts a small, 1.3% growth in prices in 2012, with more “steady” growth in 2013. Some highlights from 2011 include insuring $18 billion in reverse mortgages and $218 billion in single family mortgages, the highest dollar volume ever, Galante noted.

“I want to emphasize again that the volatility of future housing price forecasts remains the biggest risk to the MMI Fund as we take steps to rebuilt its capital reserves,” said Galante. “We will continue to monitor economic conditions and may have to make course corrections as necessary to steer FHA toward a more positive financial position.”

Read Galante’s letter to Congress here.

Written by Alyssa Gerace


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  • It is refreshing to see an acting FHA Commissioner who is willing to address difficulties.  On 11/21/2011 RMD reported that New View Advisors took a different approach in questioning if the HECM portion of the MMI Fund is sufficient.

    The real problem with increases in home values as to the HECM fund is where the values are increasing.  HECMs are highly concentrated in California and a few other states.  If those states do not do well, it does not matter how many times the value of property in Rhode Island, New Mexico, Oklahoma, South Dakota, West Virgina, or Vermont grows.  It will have minimal impact on the HECM program. 

  • Carol Galante’s ‘heads up’ statement is referring to the overall MMI Fund which insures a great many more forward mortgages than HECM loans, so we’re not just talking about HECM loans here.

    Critic’s point about particular concentrations of insured mortgages in critical states is just as true for the entire fund as it is for HECM loans. We need property value growth to be widespread in enough other states and/or significant in a few key states. To get there, we also need existing forward mortgages at risk (e.g.: increasing Option ARM payments, unemployment) to stop heading toward distressed sales or foreclosure. These pull property values down and add to the backlog of vacant homes and that is the biggest threat to the present and future MMI-insured HECM loans.

    • Bill,

      I generally agree with your comments on the forward side of the MMI fund but it is the HECM fund which is of greatest concern to the HECM industry.

      As to growth in HECM endorsement production, the entire country needs growth in home values but as to building back up the HECM portion of the MMI Fund, the biggest fix would come from increased home values in California, Florida, Texas, and New York.  Home value growth in other states will help but not as critically as in those four states in particular since they have the highest proportion of HECMs.

  • The statements also lay bare how this President and Administration have been so derelict in finding ways to improve the housing market.  As the old saying goes his actions speak far louder than his lectures to the American people.

    Today Senator Dodd is retired and Representative Frank is a lame duck.  These so called housing experts which the President so heavily relied upon to create legislation to turn the housing economy around have been effectively run out of Congress as they should have been based on their effectiveness in this their area of specialization.  

    This President has no idea what to do and it shows.  Unfortunately the Republican candidates have not introduced their plans in any detail nor have they introduced who would lead this important area of the economy.

    This President has now overseen the Great Housing Depression into ever greater trouble and it shows no signs of turning around.  Rather than campaigning for the next 6 months for his own nomination, the President needs to take that time and show at least minimum concern for this segment of the economy.  I know that is a lot to ask of THIS President.

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