FHA to Get Second Opinion on Insurance Fund Shortfall

After last year’s actuarial report on the financial health of the Federal Housing Administration’s Mutual Mortgage Insurance Fund, the Department of Housing and Urban Development is seeking a second opinion, the agency said in its quarterly report to Congress. 

The FHA may be in need of a nearly $1 billion taxpayer bailout, housing officials announced in April after the agency’s annual actuarial report showed the Fund had a negative economic value of $16.3 billion. The FHA’s reverse mortgage portfolio was in the red with losses of $5.2 billion, contributing to the Fund’s $943 million shortfall.

The fiscal year 2012 report, released last November, was prepared by the Integrated Financial Engineering Group. 


For the next report, Summit Consulting, LLC and Milliman, Inc. have been hired to provide “an additional independent analysis” of the MMI Fund’s financial health, the FHA disclosed in the foreword of its third quarter report for fiscal year 2013. 

“This second assessment will provide another view of the health of the MMI Fund, giving HUD a new independent analysis and a second actuarial model,” said Frank Vetrano, FHA deputy assistant secretary of risk management and regulatory affairs, in the report to Congress. “This will enable FHA to view the MMI Fund through another lens, informing future policy decisions, as the agency continues work to develop more sophisticated and refined internal capabilities.”

MMI Fund balances at the end of fiscal year 2013’s third quarter were $33.1 billion, according to the report, a decline of $3 billion from the previous quarter.

The FHA is hopeful an alternate opinion will be useful.

 “I believe that a second independent view of the Fund’s expected value will provide valuable insights and look forward to making these findings available to you later this year,” Vetrano said.

Access the report

Written by Alyssa Gerace

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  • The report also states: “The results produced by the primary independent actuary, Integrated Financial Engineering, Group (IFE), will continue to provide the official view of the MMI Fund capital position used to develop the Annual Report to Congress on the Financial Health of the Mutual Mortgage Insurance Fund.”

    A very cynical way of interpreting these very odd combination of positions on how each report will be utilized is that FHA will use the second report when it likes its analysis better and more importantly, as the reasoning for taking steps which the first report might otherwise deem as improper or inappropriate. Will FHA then announce the even better idea of four or five reports from which to pick and choose?

    There is a great deal of misunderstanding about the $943 million proposed positive subsidy credit shown in the 2014 budget proposal. This was the projected balance of the negative net position of the MMI Fund as of the end of fiscal 2013. The budget called for a positive credit subsidy to offset this projected negative net position. There is no expectation of any shortfall per se.

    The worse thing is that the projected negative $943 million net position in the MMI Fund represents a $5.2 billion (rounded) negative balance in the net position of the HECM portion of the MMI Fund offset by a positive $4.3 billion (rounded) net position for the rest of the MMI Fund programs. This is why we say that the overall projected negative net position for the entire MMI Fund at the end of fiscal year 2013 comes from the HECM portion of that fund. For more information, see http://rmdaily.wpengine.com/2013/04/10/fha-may-need-943-million-to-cover-reverse-mortgage-losses/

    Some commentators have insisted that this is a projected cash flow shortage for the fiscal year but that is not the case. The budget requires that all programs must be funded for any projected losses. This is simply the mechanism to provide the source of funds in advance of the need.

  • I recall an old expression, “figures lie and liars figure”.
    This much I know without reading the report upside down and backwards over my shoulder in a mirror.
    A HECM done on a home valued at $200,000 in 2008 was “expected” to appreciate at 4 percent per year which would bring the current value to $243,000. Instead, the home value typically fell to approximately $130,000 and has risen slowly to about $175,000. No wonder MMI claims are continuing to mount. No matter how you cook the books this “book of business” must work its way through the system. The good news is it is unlikely that housing values will experience such a catastrophic decline again any time soon so the fund should regain its footing sooner than later. In my opinion any “fixes” beyond lowering PLF’s to account for a more modest 2 percent appreciation rate will prove to be nothing more than a waste of time and money all the way around.

  • I want to compliment the Cynic on the comment given, it explained it the way it needed to be explained.

    In short, what we are seeing in losses are paper losses, not actual losses. The way it is presented in press releases one would think the FHA is broke and has no funds left to pay claims, which is not the case.

    Again Cynic, job well done!

    John Smaldone

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