While the Federal Housing Administration’s annual report to Congress, released in November, presented a steady outlook for the home equity conversion mortgage program, the overall analysis of FHA’s Mutual Mortgage Insurance (MMI) Fund showed what could be a precarious situation for the administration’s housing insurance program.
“There is no current evidence for any widespread, sustained home price declines in FYI 2012, but should significant declines happen to occur, it could create a situation in which the MMI Fund would require support from the Treasury,” wrote FHA Acting Housing Commissioner Carol Galante in a letter following the report.
Noting FHA’s possible actions to combat a troubled MMI fund, Galante said FHA can implement policy changes such as premium increases to provide additional support for the fund.
“We continue to keep our options on the table,” Galante wrote.
The report findings indicated that the capital reserve ratio of the fund remains positive at 0.24%, which is still below the Congressionally mandated threshold of 2% capital, she noted.
This is partially due to findings that the FHA is “expected to sustain significant losses” from loans insured pre-2009, according to the report of the actuarial study, causing the capital reserve ratio to decline from 0.50% of the total insurance-in-force in 2010 to the current 0.24%.
However, the actuarial report expects the MMI Fund to return to the Congressionally mandated level at a quicker rate than last year’s projection—barring a further significant downturn in home prices.
Moody’s Analytics predicts a small, 1.3% growth in prices in 2012, with more “steady” growth in 2013. Some highlights from 2011 include insuring $18 billion in reverse mortgages and $218 billion in single family mortgages, the highest dollar volume ever, Galante noted.
“I want to emphasize again that the volatility of future housing price forecasts remains the biggest risk to the MMI Fund as we take steps to rebuilt its capital reserves,” said Galante. “We will continue to monitor economic conditions and may have to make course corrections as necessary to steer FHA toward a more positive financial position.”
Read Galante’s letter to Congress here.
Written by Alyssa Gerace
