Steady does ‘er
The Federal Housing Administration (FHA’s) just released actuarial report indicates that that the Mutual Mortgage Insurance Fund (MMIF) is on a steady financial trajectory.
But wait, before your eyes glaze over, the National Association of Realtors® (NAR) says this “is an opportunity to make FHA’s low-down-payment mortgage option available to an even broader swath of borrowers.”
“FHA’s actuarial report shows that the fund has indisputably found its footing,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “That’s good news for taxpayers, and a reflection of FHA’s sound stewardship. It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”
Improving access to credit for working family
“FHA’s strong, sustained progress has helped fuel the housing market recovery over the past eight years,” said HUD Secretary Julian Castro. “Today’s report once again confirms that our steps to maintain a financially sound Fund are paying off, giving more American families the opportunity to afford a home of their own.”
“FHA has come a long way since our housing crisis,” said Ed Golding, HUD’s Principal Deputy Assistant Secretary for Housing. “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.”
Delinquency rates are down
FHA’s MMIF is responsible for paying lenders if a mortgagor defaults, and a clear indication of health is the report’s findings that the MMIF fund’s “seriously delinquent” rate is at a ten-year low, and the overall economic value of the fund has increased by $3.8 billion.
In 2015, the MMIF also achieved a 2.0 percent capital reserve ratio for the first time since the Great Recession, and a 2.3 percent capital reserve ratio as of today’s FHA report.
FHA also reported a 3.2 percent reserve ratio for the “forward” program, which encompasses FHA’s non-Home Equity Conversion Mortgage (HECM) portfolio.
NAR points to weaknesses in the HECM that held back the overall FHA findings, but considering the MMIF’s “increasingly good health,” the trade group is “encouraging FHA to reduce mortgage insurance premiums to better reflect the risk in the marketplace and fulfill its mission of serving low- and moderate-income borrowers.”
NAR estimates that the 50-basis-point premium cut announced in January 2015 provided an annual savings of $900 for nearly 2 million FHA homeowners.
NAR supports changes
A recent Federal Reserve study found that the January 2015 reduction in mortgage insurance premiums had a quick and significant effect on FHA mortgage volume.
Therefore, NAR also supports eliminating “life of loan” mortgage insurance, which borrowers must continue to pay until the loan is extinguished or refinanced.
Conventional mortgage products, by contrast, traditionally require mortgage insurance only until a sufficient amount of equity is achieved on the property.
“FHA mortgages are an important option for buyers, but high premiums and lifetime insurance requirements can take that option right off the table,” Brown said. “By lowering premiums and eliminating life of loan mortgage insurance, FHA can expand on their work to serve a broad population of homebuyers. We look forward to working with them in the months ahead to bring these changes to light.”