Last Friday, the Department of Housing and Urban Development released its report on the condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund. The report concludes that the FHA continued to feel the losses on mortgages before 2009, but the report also states capital balances in the MMI Fund are not affected.
HUD Secretary Shaun Donovan states: “FHA has weathered the storm of the recent economic and housing crisis by taking the most aggressive and sweeping actions in its history to reform risk management, credit policy, lender enforcement, and consumer protections.”
FHA continues to feel the effects of the housing collapse for several reasons.
For one, house-price appreciation forecasts were lower than the report last year. The housing market turned around later last year than expected, and the appreciation estimates for this year don’t include improvements from June and onward—a period when a large amount of finances occurred.
Secondly, interest rates have continued to decline. The reduction in interest rates is good for the economy, but it negatively affects the FHA because borrowers can reduce overall mortgages by refinancing. These effects skew the estimated value of the MMI Fund.
Thirdly, recommendations by the Government Accountability Office (GAO), HUD, and others have allowed for a process to better predict how losses on defaulted loans have affected the MMI Fund.
The FHA has helped insure 1.2 million single-family mortgages with a balance of $213 billion this past fiscal year. Additionally, the FHA endorsed about 78 percent of 734,000 purchase mortgages for young people, helped homeowners refinance their homes, insured 54,000 reverse mortgage transactions for seniors, and more.
Overall, the housing market is improving—though slowly. FHA Acting Commissioner Carol Galante stated: “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”
Source: Department of Housing and Urban Development
