Economic Value of FHA’s Reverse Mortgage Portfolio Grows $7.9 Billion

The financial condition of the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance (MMI )Fund gained $19 billion in Fiscal Year 2015, driven by a $7.9 billion increase in the Home Equity Conversion Mortgage (HECM) portfolio, according to FHA’s annual report to Congress released today.

For the first time since 2008, the independent actuarial analysis showed the MMI Fund’s capital ratio stands at 2.07%, exceeding the congressionally required 2% threshold FHA must maintain.

“Today’s report demonstrates that we struck the right balance in responsibly growing the Fund, reducing premiums, and doing what FHA was born to do – allowing hardworking Americans to become homeowners and spurring growth in the housing market as well as the broader economy,” said HUD Secretary Julian Castro in a written statement.

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Fiscal Year 2015 marks the third consecutive year of economic growth for the Fund, having improved 0.41% from FY 2014. The net value of the Fund is nearly $24 billion, marking the largest one-year increase since FY 2012.

As for the HECM program, its $7.9 billion increase in performance raised the HECM capital ratio from negative 1.2% in FY 2014 to positive 6.4% in FY 2015. Currently, the value of the HECM portfolio for FY 2015 stands at $6.8 billion.

“As FHA emerged from the economic crisis, discussions of the health of the MMI Fund focused on the prospects of the Forward portfolio,” states in the actuarial report. “In recent years, it has become clear that the future of health of the Fund also depends on the progress of the HECM portfolio.”

In FY 2015, FHA assisted 57,990 seniors to age in place via the HECm program, an increase of 6,374 borrowers from FY 2014.

Of this total borrower pool in 2015, 39% were single females, representing a slight decrease from 40% in the prior fiscal year; whereas single males comprised 22% of the HECM borrowers in FY 2015, up from 21% in FY 2014. Multiple borrowers were 39% of HECM borrowers, the same as FY 2014.

Borrowers’ average age has also declined, from age 77 in FY 1990 to around age 72 in FY 2015. Additionally, roughly 46% of HECM borrowers were between the ages of 62 and 69 in FY 2015, a decrease 48% in FY 2014 and 50% in FY 2013.

The positive FY 2015 Actuarial Report is great news for FHA and the HECM program because it shows that the MMI is in a position to protect itself, and taxpayers, from volatility in the marketplace, said Peter Bell, president of the National Reverse Mortgage Lenders Association (NRMLA).

“The health of the MMI fund is bolstered by improvements in the HECM portfolio attributable to changes in the actuarial forecasting of home values and interest rates, and recent policies such as changes to upfront MIP pricing and new rules requiring a financial assessment for all borrowers,” Bell said in a statement provided to RMD. “NMRLA will continue our work with FHA to improve and grow the HECM program for more seniors who want to supplement their retirement funds with proceeds from a reverse mortgage.”

Written by Jason Oliva