FHA Isn’t at Risk if Foreclosures Increase- FHA loans – the backbone for U.S. affordable housing – has enough money in reserve (MMI Fund)

WASHINGTON – The Federal Housing Administration (FHA) must issue an annual report to Congress on its financial status, specifically its ability to survive without additional taxpayer money should the economy slow.

This week it released its Annual Report to Congress on the financial status of its Mutual Mortgage Insurance Fund (MMI Fund), which is used for the FHA Single Family mortgage insurance programs authorized under Title II of the National Housing Act.

The report focuses on FHA’s role in affordable mortgage financing for first-time homebuyers and borrowers of color, its assistance to homeowners affected by the COVID-19 pandemic, its activities to increase housing supply and affordability, and its effort to reduce barriers to fair and equitable homeownership.

A major concern is how FHA will fare should foreclosures rise. With the threat of a possible recession in 2023, there’s a fear that more lower-income households – a primary focus for FHA loans – will face foreclosure. But the latest report suggests that FHA’s MMI Fund is strong and able to weather any downturn. All homeowners with an FHA loan pay into the fund, and its capital ratio cannot legally drop below 2.0%, though it did a few times during and after the Great Recession.

As of Sept. 30, 2022, the MMI Fund has a capital ratio of 11.11% as of Sept. 30, 2022, and its. net worth was $141.7 billion – about a $42 billion increase year-to-year.

“Today’s report reflects a very healthy FHA program, with continued strengthening of the FHA Mutual Mortgage Insurance Fund, lower delinquency levels, and fewer borrowers in pandemic-related forbearance,” says Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit.

The MMI Fund is high enough that Broeksmit goes one step further: Given FHA’s financial health, he thinks “HUD should make FHA loans more affordable by reducing mortgage insurance premiums as soon as budgetary opportunities allow. This move would help offset the impact of higher mortgage rates and improve the purchasing power for many prospective first-time homebuyers, minority buyers, and those with low and moderate incomes.”

Other highlights in the fiscal 2022 FHA report

• Most FHA insurance endorsements, some 84% (678,675 mortgages), went to first-time homebuyers.
• The share of FHA’s first-time buyer loans was 37 percentage points higher than other U.S. housing market participants.
• FHA provided an insurance endorsement on mortgages for 284,807 self-identified individuals and families of color – 29% of its total.
• By share, FHA served three times as many Black borrowers compared to the rest of the loan market and two times as many Hispanic borrowers.
• From the start of the pandemic through Sept. 30, 2022, more than one million borrowers with FHA-insured mortgages took advantage of loss mitigation home retention options or were in the process of obtaining one through their mortgage servicer.