In its annual report to Congress, the U.S. Department of Housing and Urban Development (HUD) announced on Monday that the Federal Housing Administration's Mutual Mortgage Insurance Fund has grown by $21 billion in the last two years and now has an economic value of $4.8 billion with a current capital ratio of 0.41 percent after being in the red two years ago.
The FHA's MMI Fund has gained almost $6 billion in the last year. HUD attributes the Fund's phenomenal growth to "robust policy actions" by regulators that have resulted in improved portfolio performances. Since last year, mortgage delinquency rates have improved by 14 percent, while recovery rates have improved by 16 percent, according to HUD.
"This year’s report shows that the fundamentals of the Fund are strong," HUD Secretary Juliàn Castro said. "Over the past five years, FHA has taken a number of prudent actions to restore the Fund’s fiscal health. This is positive news for the economy and the millions of American families that count on FHA."
A number of steps taken by the FHA following the housing market crisis of 2008, including changes to underwriting standards, loss mitigation policies, recovery strategies, and premium levels have led to the Fund's growth in the last two years, HUD said in the report.
HUD stated in the report that the Fund is "positive and on a strong trajectory" and "with the Fund on the right track, FHA is sharpening its focus on facilitating access for creditworthy families."
"Improving the performance of the Fund by $21 billion in two years is good news for the housing market," acting FHA commissioner Biniam Gebre said. "FHA will continue to focus on meeting its mission of creating responsible access, investing in our economy and preserving pathways to the middle class. We remain dedicated to giving more hard-working responsible families the chance to buy a home and not a returning to the days of reckless lending that caused so much pain for middle-class families and the economy."
While the current capital ratio of 0.41 percent indicated significant growth for the Fund, it was still well below predictions and well below the 2 percent level FHA is supposed to maintain.
“A year ago the FHA received its first-ever taxpayer-funded bailout and 12 months later the FHA has once again failed to meet its legally required minimum capital ratio," House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said in a statement. "It’s been six years since the FHA was in compliance with the law. The Obama administration predicts it will finally meet this requirement by 2016, but we’ve heard similar rosy predictions about FHA finances for years. Some in Washington are now clamoring for the FHA to lower its annual mortgage insurance premiums. But until the FHA fulfills its statutory requirement, that should be a non-starter.
“Last year’s $1.7 billion taxpayer-funded bailout and FHA’s continued failure to meet its minimum capital ratio reinforce everything that many have said about FHA for some time – that it poses a high risk to taxpayers if it is not fundamentally reformed. The American people clearly want to end the destructive cycle of boom, bust, and bailout that Washington policies helped foster in the housing market. Regrettably the FHA, as it operates today, exacerbates taxpayers’ fears of future bail-outs. The FHA has gone from backstopping the market to supplanting the market without a clear policy mission to serve first-time and low-income borrowers. The time for FHA reform is now. We can truly wait no longer.”
HUD reported that the FHA's MMI Fund's portfolio saw significant improvements across a number of measures, including: $40 billion in available cash reserves; $10 billion of additional economic value added each year; a 30 percent drop in seriously delinquent rates; a 68 percent improvement in recovery rates; a 63 percent reduction in foreclosure starts; and an 85 percent drop in early payment defaults.