The capital ratio for the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) Fund registered at 0.24% for fiscal year 2011, down from last year's 0.50% level and far below the congressionally mandated 2% threshold, according to a new report issued by the U.S. Department of Housing and Urban Development (HUD). Despite the low capital ratio, HUD insists that the MMI Fund will, according to a press statement, ‘start to rebuild capital in 2012, and return to a level of two percent by 2014 – outpacing last year's prediction.’
According to HUD, the FHA's total liquid assets – consisting of cash plus investments – grew by $800 million since last year, to $33.7 billion. At the same time, the economic net worth of the MMI Fund fell by $2.1 billion this year, from $4.7 billion in 2010 to the new $2.6 billion level.
Furthermore, HUD reported that losses on loans insured through the first quarter of fiscal year 2009 ‘continue to place a significant strain on the MMI Fund and are expected to reach $26 billion within a few more years.’ The net expected cost of those loans, as projected by the independent actuaries, grew by $1.8 billion over the past year to $14.1 billion, HUD adds.
The Obama administration released this data with an emphasis on positive achievement.
‘In the midst of a tough housing market, the FHA MMI Fund continues to be actuarially sound,’ says Carol Galante, acting FHA commissioner. ‘Because of the Obama administration's strategy to protect the FHA fund – tightening of risk controls, increased premiums to stabilize near-term finances, and expanded loss mitigation assistance to avoid unnecessary claims – this past year's endorsements had the highest credit quality ever recorded, and will yield historically high levels of net receipts in the years ahead.’
However, Michael W. Young, chairman of the Mortgage Bankers Association, has reacted to the news with cautious optimism.
‘It is clear that the persistent troubles in the economy and real estate markets are continuing to impact FHA's financial reserves, and given FHA's mission of providing access to mortgage credit to lower income and first time homebuyers, it should be of little surprise that its reserves are being stressed,’ says Young. ‘That the FHA continues to remain net-positive is a testament to the numerous credit policy and operational changes implemented over the last couple of years to stabilize the fund, while the agency has played a larger role than ever as one of the few guarantors of mortgage credit for millions of homebuyers across America.’
Young adds that the situation could be more problematic. ‘Without FHA's support, our housing market would be in far worse shape than it is today,’ he says.