FHA’s strong capital levels should end life-of-loan rule

While
the
Federal
Housing
Administration’s
insurance
fund
capital
ratio
improved
during
fiscal
year
2024,
the
delinquency
rate
has
also
increased,
the
annual
report
from
the
Department
of
Housing
and
Urban
Development
said.

The
Mutual
Mortgage
Insurance
Fund’s
capital
ratio
was
11.47%
as
of
Sept.
30,
which
was
the
end
of
the
federal
fiscal
year.
It
was
an
increase
of
96
basis
points
from


the
end
of
fiscal
year
2023,
when
the
ratio
was
10.51%.

This
turns
around
a
decrease
in
the
capital
ratio
last
year;


at
the
end
of
fiscal
year
2022,
the
ratio
was
11.11%.

The
stand-alone
capital
ratio
of
the
forward
mortgage
portfolio
stood
at
10.88%,
while
for
the
reverse
mortgage
program
it
was
24.5%.

“Through
our
work,
we
have
demonstrated
that
FHA
can
facilitate
homeownership
and
wealth-building
opportunities
for
hundreds
of
thousands
of
households
and
provide
support
for
homeowners
facing
hardships
while
maintaining
a
financially
sound
Mutual
Mortgage
Insurance
Fund,”
Federal
Housing
Commissioner
Julia
Gordon
said
in
a
press
release.

The
MMIF
has
$173
billion
in
capital,
a
$27.5
billion
increase
from
fiscal
year
2023.

Growth
in
home
price
appreciation
helped
to
drive
the
MMIF’s
performance,
but
going
forward
that
is
expected
to
level
off.

Another
driver
of
change
in
the
capital
ratio,
and
the
majority
of
MMI
Fund
capital,
is
growth
of
its
capital
resources,
currently
8.29%
of
the
FHA’s
insurance
in
force.
Those
are
composed
of
collected
upfront
and
monthly
insurance
premiums,
investments,
recoveries
on
disposed
assets,
and
any
notes
and
properties
awaiting
disposition

The
Community
Home
Lenders
of
America
lauded
the
Fund’s “strong
performance”
but
also
saw
it
as
an
opportunity
for
additional
changes
to
FHA
policy.

“In
particular,
CHLA
believes
the
FHA
report
demonstrates
the
effectiveness
of
the


February
2023
cut
of
30
basis
points
in
annual
FHA
premiums,
and
we
reiterate
our
call
for
FHA
to
find
a
way
to
end
life
of
loan
premiums,
which
currently
overcharge
borrowers,”
a
statement
from
the
organization
said.

Similarly,
the
Mortgage
Bankers
Association
noted
that
the
current
ratio
is
more
than
five
times
the
statutory
minimum
for
the
MMIF.

“While
it
is
sensible
to
have
a
healthy
cushion
above
the
2%
minimum
reserve,
qualified
borrowers
should
not
be
charged
higher
mortgage
insurance
premiums
than
necessary,”
a
statement
from
President
and
CEO
Bob
Broeksmit
said. “In
addition
to
pursuing
more
program
enhancements
to
boost
housing
supply
and
affordability,
such
as


this
year’s
203(k)
program
updates,
borrowers
would
see
meaningful
payment
relief
from
FHA
eliminating
its
life
of
loan
premium
requirement
and
making
another
reasonable
cut
to
the
MIP.”

Approximately
1.156
million
borrowers
saved
an
average
of
$453
annually
as
a
result
of
the
mortgage
insurance
premium
reduction,
for
a
total
savings
of
more
than
$828
million
from
March
2023
through
the
end
of
the
fiscal
year
2024. “Over
the
average
loan
life
of
9.8
years,
the
forecasted
total
savings
would
be
$5.1
billion,”
the
report
said.

During
the
fiscal
year,
which
ended
on
Sept.
30,
the
FHA
insurance
program
served
766,942
forward
mortgage
borrowers.
That
included
603,040
purchase
borrowers,
over
82%
of
those
were
first-time
home
buyers,
along
with
242,796
borrowers
who
identified
as
people
of
color.
FHA
also
insured
26,501
Home
Equity
Conversion
Mortgages.

In
recent
years,


the
private
mortgage
insurance
industry
has
had
little
overlap
in
customers
with
the
FHA
program.
Although
in
the
run-up
to
the
premium
cut
in
2023
along
with
Federal
Housing
Finance
Agency
changes
to
the
loan
level
pricing
adjustments,
it
was
debated
how
many
conforming
borrowers
could
migrate
back
to
FHA.

The
U.S.
Mortgage
Insurers
argued
the
FHA
has
a
countercyclical
role
and
needs
to
remain
well-capitalized,
while
private
capital
stands
in
a
first-loss
position
for
low
down
payment
loans
backed
by
private
MI.

“As
such,
policymakers
should
ensure
that
there
is
a
consistent,
transparent,
and
coordinated
approach
to
housing
policy,
so
that
private
capital
can
protect
against
credit
risk
ahead
of
taxpayers
whenever
possible,”
Seth
Appleton,
USMI
president,
said
in
a
statement. “This
approach
would
enable
FHA
to
focus
on
its
mission
of
supporting
borrowers
who
do
not
have
access
to
traditional
financing
and
ensure
that
it
can
play
its
countercyclical
role
under
all
economic
conditions.”

The
seriously
delinquent
share
of
FHA
borrowers
was
4.15%
as
of
September.
This
was
a
slight
increase
from
a
year
ago
but
consistent
with
rates
seen
prior
to
the
COVID-19
pandemic,
the
report
said.