FHA Report Shows Strong Agency Turnaround, Insurance Fund Improvement

The Federal Housing Administration’s mutual mortgage insurance fund showed strong improvement in 2013, according to an annual independent actuarial review of the fund released Friday.

The fund gained $15 billion in value over the course of fiscal year 2013, from negative $16.3 billion to negative $1.3 billion, a strong improvement over the past year. The agency’s capital reserve ratio also shot up from negative 1.44% to negative 0.33%, nearing positive territory earlier than expected based on last year’s report.

The reverse mortgage portfolio showed similar improvement and is now fully capitalized, having gained $9 billion in value during the year, from a negative net value of $16.1 billion to a net present value of negative $5.5 billion. A transfer from the forward portfolio as well as a treasury draw led to the the current net worth estimate.

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“The HECM portfolio is now fully capitalized and is on an increasingly sustainable path moving forward,” FHA noted in its summary of the findings.

Independent actuaries who authored the report project continued improvement in the reverse mortgage portfolio, and in the fund overall, based on economic recovery and policy improvements, with FHA expected to meet its capital reserve requirement of 2% in 2015. The report was received positively by FHA officials as well as mortgage market participants who pointed to policy measures and improving home values as driving the health of the fund forward.

“What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” said Secretary Donovan in response to the report. “We look to the future and remain committed to continuing our progress to strengthen the MMI Fund so that ladders of opportunity are available to all Americans for generations to come.”

The report pointed to several changes in particlar that helped drive the health of the fund including a low level of early payment defaults; an 18% drop in serious delinquency rates and 20% drop in foreclosure starts; and FHA REO recovery rates up 28% from December 2012.

“As the value of the Fund continues to improve, FHA will make every effort to maintain this positive momentum while simultaneously ensuring qualified borrowers in underserved markets can responsibly access mortgage credit,” said FHA Commissioner Carol Galante. “Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit. The fact that economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”

Several changes are still being considered, HUD noted, including indemnification efforts and authority to terminate lenders on a national basis, among others.

HECM program changes are leading to improvement in the reverse mortgage portfolio, the actuaries noted.

“The positive projected economic values of future books of business are attributable in part to recent and forthcoming HECM program changes, which are expected to improve loan performance,” they write in the report. “However, if the volume of HECM endorsements over the next seven years is lower than projected, the economic value of future HECM portfolios will be lower than projected. Additionally, if macroeconomic conditions are worse than forecasted, the economic values of future HECM portfolios will be lower than projected.”

Written by Elizabeth Ecker

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    • Mr. Mastromatto,

      Fixed rate HECMs could be operated exactly the same as adjustable rate HECMs under HUD guidelines right now except no lender in its right mind would be foolish enough to offer a fixed rate product on an open ended basis.

      If it had not been for HUD taking $6.546 billion out of other MMI Fund programs plus $1.686 billion out of the US Treasury and putting them into the HECM portion of the MMI Fund, the HECM net position in the MMI Fund would show a negative balance of at least $1.691 billion. HUD transferred the $8.232 billion so that the HECM program would start off on a solid financial foundation this fiscal year not so that it could adopt fiscally unsound ideas.

      Your comment does not indicate any appreciation for the depths of what has done to put the HECM program on a solid financial foundation. I just hope that the HECM program will right itself enough during fiscal 2014 so that HUD can increase the percentage limitation on first year disbursements to something closer to 80% and increase PLFs back closer to what they were in fiscal 2008; however, that hope is most likely far too premature.

      (The opinions expressed in this response are not necessarily those of RMS or its affiliates.)

      • Mr. Mastomatto,

        Why is that? The first year disbursement limitation is only a one year limitation rule.

        What grounds do you have for making such a cavalier statement? Can you actually cite a study which says 60% and not 80% is the right limitation percentage?

  • HUD has done something profoundly astonishing to get the HECM portion of the net position of the MMI Fund from a negative $2.799 billion to a now positive $6.541 billion.

    Beyond what HUD has taken in the past, during fiscal 2013 HUD transferred an additional $4.263 billion out of the other MMI Fund programs into the HECM portion of the MMI Fund. It also took $1.686 billion out of Treasury. Total transfers were $5.949 billion during fiscal 2013.

    So including the funds transferred during fiscal years 2010, 2011, and now 2013, HUD has now taken $6.546 billion from other MMI Fund programs and put them into the HECM portion of that program. Adding that to the amount now taken from the US Treasury, the HECM portion of the MMI Fund has now received $8.232 billion in monies not related to MIP income.

    To be clear there has never been a time in which the HECM program has not been subsidized by US taxpayers. All ongoing operating and general and administrative costs of running the HECM program are paid through the annual budget appropriation to HUD. So those who have claimed at any time in the past that taxpayers do not subsidize the HECM program were not only wrong but also spreading a very misleading industry created myth.

    What was never subsidized by taxpayers or other HUD programs was the loss reimbursement portion of the HECM program until fiscal year 2010. From that fiscal year forward except for fiscal year 2012, during each fiscal year the loss reimbursement portion of the HECM segment in the MMI Fund has received transfers of funds from other MMI Fund programs. Fiscal year 2013 is the first year that the Secretary has ever transferred funds out of the US Treasury which was not somehow connected to MIP or the intra-governmental earnings on it.

  • Elizabeth,

    The auditors’ reports by outside independent CPAs of the MMI Fund and the HECM portion of the MMI Fund are very different from the actuarial review report on the MMI Fund and the HECM portion of that fund. What you correctly link to is the actuarial report.

    Please correct the headline to this story to show it is the actuarial review reports you are reporting on.

    Have a great weekend.

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