Nov 15, 2016 16:25 ET
FHA insurance fund gains strength in 2016
A strong housing market has left the Federal Housing Administration’s (FHA’s)mortgage insurance fund on a more solid footing.
FHA’s Mutual Mortgage Insurance Fund (MMIF) hit a key benchmark for stability for the second year in a row, with the fund’s capital ratio achieving the congressionally mandated target of 2 percent.
The ratio stood at 2.32 percent for fiscal 2016, ending Sept. 30, up from 2.07 percent in fiscal 2015, the U.S. Department of Housing and Urban Development (HUD) reported. It is the fourth year in row that the fund’s capital ratio has grown.
The MMIF is funded through insurance premiums made by FHA borrowers, and used by the agency to pay claims to lenders when borrowers default.
The overall net worth of the MMIF was estimated at $27.6 billion at the end of fiscal 2016. That is up from $23.8 billion in fiscal 2015 and up from a negative $16.3 billion during a low point of the housing market at the end of fiscal 2012. After the housing crash and wave of defaults, the MMIF sank into the red and required its first bailout from the U.S. Treasury in 80 years in 2013 .
HUD officials touted the agency’s efforts to extend credit to first-time homebuyers and working families.
“FHA has come a long way since our housing crisis,” said Ed Golding, who heads up the FHA. “With evidence that FHA’s fundamentals are strong and improving, there is no doubt that FHA is making steady progress accumulating capital and, at the same time, improving access to credit for working families.”
Trade groups press for insurance cut
Several industry groups seized on the strong financial report to press their policy agendas. The National Association of Realtors (NAR) and the nonbank trade group Community Home Lenders Association (CHLA) called on HUD to reduce the mortgage-insurance premium, which would boost originations and potentially expand FHA’s footprint on the low-downpayment, first-time homebuyer market.
In early 2015, the Obama Administration cut the annual premium on FHA loans by 50 basis points, which helped to spur FHA originations significantly over the past year and a half. Overall FHA loan counts rose by 12.7 percent in fiscal 2016 (to 1.25 million) compared to fiscal 2015 (1.12 million), according to HUD. The loan balances also increased by 15 percent in fiscal 2016, to $245.4 billion, over the fiscal 2015 volume of $213.1 billion.
CHLA is advocating for a further 30 basis point cut in the annual premium to 0.55 percent, which would bring mortgage premiums down to the prerecession level. Realtors and CHLA also want the government to end a recession-era provision that requires most borrowers to hold insurance for the life of the loan.
A further cut to the MIP would be controversial, however. The U.S. Mortgage Insurers, for example, want to see FHA pull back and let Fannie Mae and Freddie Mac take on a greater share of the low-downpayment market. Borrowers typically pay private insurance on Fannie and Freddie loans with lower downpayments. The trade group said in a release that FHA “no longer needs to play an oversized role” and should focus on backing loans “in underserved communities.”
The major mortgage trade organization, the Mortgage Bankers Association (MBA), opposes an insurance cut at this time, citing volatility in the FHA’s Home Equity Conversion Mortgage (HECM) program.
“It is a worthwhile conversation, but [we] must caution that today’s report again shows the vulnerability to the reserve fund posed by the volatility in the HECM book,” MBA President David Stevens said. “Given the HECM volatility and recent concerns about liquidity in the Ginnie Mae market, these discussions should occur with an eye toward long-term stability for the FHA program.”
In fiscal 2015, the FHA’s MMIF hit the 2 percent capital-ratio target largely on a significant gain in the value of the reverse-mortgage portfolio. In fiscal 2016, however, the value of the portfolio declined steeply. The HECM portfolio was assigned a value of negative $7.7 billion in fiscal 2016, compared with a positive valuation of $6.8 billion in fiscal 2015, HUD said.