FHA ISSUES ANNUAL FINANCIAL STATUS REPORT TO CONGRESS

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WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today released its annual report to Congress on the financial condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund.  The independent actuarial report shows that FHA’s Mutual Mortgage Insurance Fund (MMIF) has gained $15 billion dollars in value over the last year and now stands at negative $1.3 billion.  The current capital ratio is negative0.11 percent.  The actuary anticipates that the Fund will return to the required two percent capital reserve ratio in 2015, two years sooner than projected last year. Meanwhile, FHA maintains over $48 billion in liquid assets to pay expected claims.

 “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,” stated Secretary Donovan.  “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.”

 “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,” noted 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 the economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”

The independent actuarial report identified several factors as drivers for the improvement in FHA’s position compared to last year, including: 

  • Early payment delinquency rates are at their lowest levels in seven years which shows that changes in credit and underwriting policy have improved the performance of the newest books of business.
  • An 18 percent drop in serious delinquency rates and a 20 percent drop in foreclosures starts as a result of enhanced loss mitigations policies.
  • FHA REO recovery rates up 28 percent from last December, and this figure does not account for the future impact of FHA’s new streamlined short sale program which was launched in July.

The report makes clear that the steps this Administration has taken to improve the health of the Fund are beginning to take hold and we are starting to turn the page on the financial crisis that brought many institutions to their knees.  These actions include tightened credit standards, adjustments to premiums, and improved and expanded use of loss mitigation and REO alternatives all while protecting access to affordable credit for qualified borrowers.

However, FHA continues to seek a number of legislative changesto build upon this momentum.  These include:

  • Ability to seek indemnification from all classes ofFHA approved lenders;
  • Authority to terminate lender approval on a national, instead of regional, basis;
  • Revision of the compare ratio statute, to provide agilityto FHA in lender monitoring;
  • Tools to enable FHA to more efficiently acquire the resources necessary to monitor its portfolio and
  • Facilitating servicing by specialty servicers, which assists borrowers and ultimately reducescosts to the Fund.

Through the coming years, FHA will continue to focus on protecting and improving the performance of the Fund – playing its critical role of ensuring access to credit for qualified borrowers in underserved markets.

The FHA’s Role in the Housing Market

The FHA was established in response to the failure of the banking system during the Great Depression to help stabilize the economy and the housing market. When the private market couldn’t or wouldn’t provide access to credit, FHA was there, investing in our economy and preserving pathways to the middle class – just as it was designed to do. During this most recent crisis, FHA experienced a nearly five-fold increase in market share enabling it to provide critical access to credit when most needed. Today, the number of single-family loan endorsements has declined to pre-crisis levels. This decline indicates the housing market and economy are beginning to recover.

Today, nationwide foreclosure rates are down, unemployment continues to fall, and home prices are rising at their fastest rate in seven years.  Further, in the first half of 2013 more than 3.5 million families are back above water on their mortgages. Despite the signs of recovery and pre-crisis level loan volumes, FHA’s market share remains higher than normal; this is a reflection of a substantial decrease in the total size of the mortgage market.

FHA continues to do its job—expanding and contracting its volume to best serve the American people when needed. During its nearly 80-year history, FHA has helped approximately 40 million Americans purchase or refinance homes—nearly 7 million of those just during the most recent crisis.

Read a comprehensive briefing on the Independent Actuary’s Report and FHA’s Financial Outlook

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