FHA Fund Achieves 2 Percent Capital Reserve Requirement
Realtors® Applaud Success, Call for Further FHA Policy Changes to Bolster Homeownership
WASHINGTON (November 16, 2015) — The Federal Housing Administration today released its 2015 Actuarial Review, a financial assessment of the Mutual Mortgage Insurance Fund, and the review shows that the fund has strongly rebounded, achieved greater overall health, and seen increased access to safe mortgage financing as cuts to FHA's annual mortgage insurance premium have taken hold.
The fund report found that since 2012, delinquency rates fell 40 percent, there was a 28 percent improvement in recovery rates, and there was a $40 billion increase in the value of the fund.
"NAR advocated strongly for cutting FHA annual mortgage insurance premiums, and those policies are now paying dividends for both taxpayers and homeowners," said NAR President Chris Polychron, executive broker of 1st Choice Realty in Hot Springs, Arkansas. "Today's announcement shows that the Mutual Mortgage Insurance Fund's health has solidly improved, offering strong incentive for FHA to take further action to support homeownership in America."
FHA undertook a series of administrative measures over the past few years to mitigate credit risk, including raising premiums. However, according to NAR estimates, nearly 250,000 creditworthy borrowers were priced out of the housing market in 2013 alone because of these increases. This represents another hurdle for borrowers, including first-time buyers. Earlier this month, NAR released its annual Profile of Home Buyers and Sellers showing that the share of first–time buyers declined for the third consecutive year, remaining at its lowest point in nearly three decades.
In addition, FHA's 2014 actuarial assessment showed dramatic improvement through falling delinquency rates and improved recoveries on dispositions.
Recognizing the challenge that increasing mortgage insurance premiums posed to potential homeowners, FHA announced a 50 basis point cut to the premiums in January 2015. At the time, FHA estimated this would result in an average annual savings of $900 for nearly 2 million FHA homeowners. FHA also estimated that an additional 250,000 homebuyers would be spurred to purchase their first home within three years as a result of the cuts.
"NAR will continue to review the actuarial assessment, but we believe these results show a positive trajectory for the mortgage insurance fund and a clear path for FHA to remain above its federally-mandated 2 percent capital reserve ratio," said Polychron. "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 towards additional policy changes to encourage homeownership."
The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.