FHA May Need $943 Million to Cover Reverse Mortgage Losses

The Federal Housing Administration may need a capital infusion of $943 million in taxpayer funds, housing officials said Wednesday, following the release of the President’s 2014 budget.

The losses stem largely from those sustained as a result of FHA’s reverse mortgage program, Assistant Housing Secretary Carol Galante said in a statement.

“The President’s budget projects that FHA may need a $943 million credit from the U.S. Treasury in October to make certain sufficient reserves are on hand today to cover projected losses over the next 30-years,” Galante said. “This is not a certainty and FHA is taking every appropriate action to reduce the likelihood that such assistance is needed. In fact, were it not for our reverse mortgage portfolio, the budget re-estimate would indicate a positive surplus of over $4 billion at the end of 2013.”

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While forward mortgages show a surplus in FHA’s reestimate of reserves of $4.3 billion, the reverse mortgage portion shows a loss of $5.2 billion, resulting in the $943 million shortfall, according to FHA.

An actuarial review of the MMI fund in late 2012 indicated the reverse mortgage fund had a negative $2.8 billion economic value; part of more than $16 billion in negative economic value of the fund overall.

The “bailout” will be the first in the FHA’s 80-year history. It results from projected losses to the FHA’s mutual mortgage insurance fund, stemming from losses on reverse mortgages and forward loans sustained during the housing crisis and marked by continued low home values.

Measures have been taken to help shore up the fund including the suspension of FHA’s fixed rate standard reverse mortgage and insurance premium increases on forward loans. The FHA has requested the authority from Congress to make additional changes toward that same effort.

Written by Elizabeth Ecker

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  • Why is it that we as an industry are so unprepared for looking at our program under a realistic light?

    Over the last week there has been a string of comments arguing about the projections provided in the 2012 Acturial Report for the following 7 fiscal years. A NRMLA board member and a strong analyst in the industry attacked the projection for fiscal 2013 by saying that the strong housing market and higher endorsement numbers would mean a better MMI Fund. Yet that same person did not seem to realize that a better MMI Fund does not necessarily mean our situation with Congress would better.

    The actuaries projected that the negative net position in the MMI Fund would be reduced by $131 million during fiscal year 2013 but the 2% increase in the 2% capital reserve requirement for the HECM portion of the MMI Fund would grow by $302 million. We while the MMI Fund may be getting better, the 2% capital reserve requirement situation that Congress looks at will only be getting worse per the actuarial projections!!!

    It seems OMB believes the situation for fiscal 2014 is far worse than even the actuaries were projecting in their 2012 report. The actuaries show for that year, we would not only see a $442 million reduction in the HECM negative net position but that reduction would outpace the increase to the 2% capital reserve requirement of $236 million by $206 million.

    Yet the OMB outlook for fiscal 2014 is presented long after the issuance of the Mortgagee Letter announcing the consolidation of the fixed rate Standard into the fixed rate Saver. The actuarial report was published well before the decision to terminate the fixed rate Standard. So is it that OMB somehow believes that the fixed rate Standard would have improved the picture for fiscal 2014 or that the situation for HECMs is so much worse in the eyes of OMB now than it was in the minds of the actuaries when they wrote their 2012 report? It could also be that the work on the OMB report did not take into account the termination of fixed rate Standards because of how long ago it may have been completed. There are many unsettled and unsettling questions in the budget report. Until the report is analyzed, responsible responses will have to wait.

    The views expressed in this comment are not necessarily those of Security One Lending or its affiliates.

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