FHA’s balance sheet rebounds after bailout

A top housing industry regulator’s finances is continuing a strong rebound since receiving a multi-billion dollar taxpayer bailout in 2013.

The Federal Housing Administration’s Mutual Mortgage Insurance Fund on Monday eclipsed a key benchmark for the first time since the financial crisis, reflecting an improvement in the agency’s health and steering it well clear of another taxpayer infusion, according to an independent analysis sent to Congress.

{mosads}The fund’s value increased by $19 billion during fiscal year 2015, pushing reserves to 2.07 percent — up from 0.41 percent last year — the first time since 2008 that the fund has exceeded the congressionally required 2 percent threshold.

“FHA is on solid financial footing and positioned to continue playing its vital role in assisting future generations of homeowners,” said HUD Secretary Julián Castro.

“Today’s report demonstrates that we struck the right balance in responsibly growing the fund, reducing premiums and doing what FHA was born to do — allowing hardworking Americans to become homeowners and spurring growth in the housing market as well as the broader economy,” Castro said.

Two years ago, the FHA needed $1.7 billion in taxpayer help — the first-ever bailout in the agency’s 80-year history — after loan losses and a reverse mortgage program contributed to a negative value of $16.3 billion.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said that “after breaking the law for seven years, it’s good to see that the FHA is finally in compliance but it’s sad that merely following the law is what passes for ‘victory’ in the Obama administration.”

“This is no time for hollow victory laps from administration officials,” Hensarling said. “Hardworking taxpayers remain exposed to more than $1 trillion in FHA insured mortgage credit risk, and the FHA capital reserve remains woefully insufficient.”

U.S. Mortgage Insurers President and Executive Director Lindsey Johnson welcomed the progress but he cautioned against “a false sense of security from today’s report.”

“It is a reminder of continued taxpayer exposure to more than $1 trillion in FHA-insured mortgage credit risk,” Johnson said.

“FHA still needs to become more financially resilient in line with the rest of the financial system, and remain focused on its core mission of serving underserved communities.”

To that end, Johnson said the group is calling for policymakers to increase in the fund’s minimum capital ratio in an effort to reduce the chances that taxpayers will need to lend their help again in the future.

They noted that some analysts have said the ratio should be more in the range of 4.5 percent to ensure the agency is prepared for any future market shocks.

Meanwhile, the latest report shows that in the past three years, the fund’s value has increased by $40 billion. 

In 2015, the fund’s value posted its largest one-year increase since 2012 with net worth standing at nearly $24 billion.

FHA’s annual report also shows a significant increase — a 42 percent increase in total volume — during the year, largely because of the reduction in annual mortgage insurance premium prices announced in January.

The fund was bolstered by continued actions to reduce risk, cut losses and improve recoveries, which have grown 28 percent since 2012 while serious delinquencies declined 39 percent.

Chris Polychron, president of the National Association Realtors, said the improvement in the insurance fund offers “strong incentive for FHA to take further action to support homeownership.”

Polychron said the positive trajectory for the mortgage insurance fund puts it on a clear path to remain above its federally mandated 2 percent ratio.

“We believe that as delinquencies continue to decline and home prices continue to rise, the MMI’s success will only continue. With that in mind, FHA should look in the very near term toward additional policy changes to encourage homeownership.”

David Stevens, president and CEO of the Mortgage Bankers Association, said that “improvements in the value of the fund over the past few years are the result of a series of policy decisions designed to rebuild the fund and protect taxpayers and the role FHA plays in the housing system, particularly for low- and moderate-income Americans and first-time homebuyers.”

But he urged policymakers to look carefully at the Home Equity Conversion Mortgage (HECM), the FHA’s reverse mortgage program which enables the withdrawal of home equity.

The program reported a $6.8 billion gain this year and a $6.5 billion increase in 2013. But it posted a $1.2 billion loss in 2014 and $2.8 billion in 2012, when the agency needed the bailout.

Stevens argued that while only 10 percent of the overall portfolio, “the HECM program has been responsible for a large part of the value swing in recent years, which is something that policymakers might want to be looking at.”  

“That, however, does not diminish what is really good news today, that the capital reserves are now forecast to exceed the 2 percent statutory minimum,” Stevens said. 

Tom Woods, chairman of the National Association of Home Builders (NAHB), called the FHA report “very positive.”

“This upward trend is another indicator that the housing recovery continues to move forward and that FHA’s financial picture continues to brighten,” Woods said.

He said the latest figures “should provide momentum for the agency to take additional steps to expand credit opportunities for first-time home buyers and young families seeking to enter the housing market.”

Peter Bell, president of the National Reverse Mortgage Lenders Association, said that the news about the fund shows that it “is in a position to protect itself, and taxpayers, from volatility in the marketplace.”

This story was updated at 5:25 p.m.