FHA Report to Congress Shows Capital Ratio Remains Above Statutory Minimum

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The U.S. Department of Housing and Urban Development (HUD) has released its fiscal year 2021 report to Congress on the financial health of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund. In addition to its emphasis on delivering relief options to homeowners financially impacted by the COVID-19 pandemic, FHA continued to deliver on its mission of enabling homeownership for first-time and low- and moderate-income home buyers, and households of color.

The MMI Fund supports FHA’s Single Family mortgage insurance programs, including all forward mortgage purchase and refinance transactions, as well as mortgages insured under the Home Equity Conversion Mortgage (HECM) reverse mortgage program. The report illustrates that the MMI Fund increased its overall capital ratio, ending the fiscal year at 8.03%, an increase of 1.93 percentage points over the previous fiscal year.

For the first time since 2015, the HECM reverse mortgage program has a strong positive ratio, primarily due to strong national home price appreciation. As the recovery from the pandemic continues, the fund remains well positioned to withstand future economic events and endure the outcomes from the pandemic induced delinquencies that remain in forbearance or are seriously delinquent.

“The strength of the fund is a promising sign and solidifies the important role FHA fulfills in making homeownership a reality for first-time homebuyers and those with lower incomes,” says U.S. Department of Housing and Urban Development Secretary Marcia L. Fudge. “This year, our administration took unprecedented steps to deliver relief to those devastated by the pandemic.”

“Managing the strong fiscal health and performance of the FHA program is a top priority, and I am encouraged to see the MMI Fund remain resilient through the events of the past year,” Fudge adds. “Looking ahead, we will ensure FHA is well positioned to provide broad and equitable access to homeownership, especially for those who have been historically underserved in the mortgage market.”

As of September 30, 2021, FHA had active insurance on more than 7.8 million single family forward and reverse mortgages, with a total unpaid principal balance of more than $1.2 trillion.

The percentage of first-time homebuyers using FHA insurance reached a new high of 84.73% of total FHA forward mortgage purchase endorsements in FY 2021. The share of mortgages insured by FHA to minority borrowers reached almost 42% of all FHA forward mortgage insurance endorsements in FY 2021. FHA served double the percentage of Black and Hispanic borrowers when compared to those served through mortgage originations by the rest of the housing market this past fiscal year.

The overall Capital Ratio for FY 2021 was 8.03%, an increase of 1.93 percentage points over FY 2020’s 6.10% capital ratio. The Capital Ratio is one indicator of the MMI Fund’s financial health and includes both the FHA-insured single family forward and reverse mortgage portfolios.

“The continued strengthening of the FHA Mutual Mortgage Insurance Fund is a welcome development that highlights the strong financial stewardship of the Fund by HUD and other stakeholders, including lenders,” says Bob Broeksmit, CMB, president and CEO of the Mortgage Bankers Association. “A healthy FHA program is necessary to ensure the broad availability of sustainable mortgage credit to low- and moderate-income households, minority borrowers, first-time homebuyers, and other historically underserved communities.”

FHA’s forward mortgage portfolio achieved solid performance with a stand-alone capital ratio of 7.99% as of September 30, 2021, an increase of 1.68 percentage points over the previous year.

“With the combined Fund capital ratio now at 8.03%, it is appropriate for HUD to expeditiously examine reductions in FHA mortgage insurance premiums, which have been at their current levels for nearly seven years,” Broeksmit continues. “HUD should focus on pricing changes that have the greatest impact on affordability and sustainability for borrowers, such as reductions to the annual premiums, while being mindful of the current delinquency levels in the FHA portfolio and the elevated number of borrowers who remain in forbearance.”

The Home Equity Conversion Mortgage (HECM) reverse mortgage portfolio saw a significant improvement in its valuation. It has a stand-alone capital ratio of 6.08% as of September 30, 2021, compared to a negative 0.78% capital ratio from the previous year.

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