FHA capital ratio drops, but hopes for another round of premium cuts remain

FHA Mutual Mortgage Insurance Fund capital ratio fell 60 basis points from the previous year last year But it’s still higher than the 2% target set out in the FHA’s latest annual report.

Despite lower fund income and challenging market conditions for insured loan originations in the fiscal year ended September 30, the overall ratio of 10.51% and separate measures for the forward and reverse mortgage portions of the portfolio remained at Historical highs.

The capital ratio for the forward or conventional mortgage portion of the portfolio was 10.2%, down 27 basis points from 10.47% a year ago. The reverse mortgage portfolio’s capital ratio fell from 22.77% to 16.72%, consistent with falling home prices and appreciation forecasts.

The relatively high numbers bring confidence to the single-family home market, which has struggled over the past year due to affordability and inventory constraints, particularly in low-income, first-time FHA-insured homes. among home buyers and the elderly.

It also alleviates people’s concerns Mortgage insurance premiums cut After a series of demands from the industry, the Federal Housing Administration finally agreed this year. Reverse Mortgage Bankruptcy Under Public Intervention may have a negative impact on the soundness of the Fund.

Officials at the Federal Housing Administration, part of the Department of Housing and Urban Development, have often cited the need to protect the fund’s finances when considering premium cuts in the past, but they ultimately approved the cuts and have no regrets about it.

“I am proud that FHA provided real solutions this past fiscal year, including lowering our mortgage insurance premiums,” Administration Commissioner Julia Gordon said in a release.

The fund’s total capital increased by $3.6 billion to more than $145 billion, and the FHA’s serious delinquency rate was 3.93%, according to the annual actuarial report. .

As capital indicators of the soundness of insurance funding remain strong and market challenges persist, industry groups issued a statement calling for further reductions in loan costs.

“Given FHA’s financial strength, just as alleviating excessive student debt burdens has been a priority, so too should the government prioritize alleviating excessive student debt burdens,” said Scott Olson, executive director of Community Home Lenders of America. Home mortgage cost burden.”

Community lending groups and the Mortgage Bankers Association are both calling on the Federal Housing Administration to completely eliminate one of two fees it imposes on insured loans.

“Further action on MIP, such as eliminating the loan term premium requirement, should be considered,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

Whether FHA would be open to such a move may depend on the balance between its need to fulfill its affordable housing mission while still protecting its insurance funds, which have struggled during past crises, especially in the Great Depression. During recessions, there is a constant threat of negative capital ratios.

These two goals require FHA to strike a balance, but they can also be aligned because lowering loan costs in a tight affordability market can provide borrowers with more of a buffer against financial hardship and help control delinquency rates.

The Federal Housing Administration led the rest of the market in lending to underserved racial and ethnic groups last year, according to an analysis of data from the Home Mortgage Disclosure Act, Milliman, Freddie Mac, Fannie Mae and Ginnie Mae.

More than 19% of Federal Housing Administration (FHA) loans go to black borrowers, compared with less than 7% in the rest of the market. Nearly 25% of mortgages insured by the Federal Housing Administration (FHA) go to Hispanic households, while just over 11% go through other programs.

The U.S. Mortgage Insurance Corporation issued a statement supporting the government’s housing mission and soundness, saying: “The Federal Housing Administration is an important complement to our industry’s work, particularly in serving those who may not be able to obtain housing through the traditional market. . ”

While more than 40% of FHA loans finance housing for underserved populations, the National Association of Realtors’ latest annual State of Black Housing in America report shows the homeownership gap remains wide in the most recent (2022) HMDA data .

The homeownership rate for black households in this data was 45%, “slightly higher than when the Fair Housing Act was passed in 1968,” the report said. White apartment homeownership rates were nearly 30 percentage points higher last year.

While black homeownership rates are slightly higher than in 1968, the gap between the two groups is wider than in 1970, when the gap was just under 24 percentage points.

NAREB President Courtney Johnson Rose said in a news release that the housing agency can further its fair housing mission by strengthening support to expand supply.

“Housing inventory has to increase across the country. If homes are unavailable or the market is so tight that prices are artificially high, families can’t afford to buy,” Ross said.

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