Lower credit losses and higher premium revenues pushed the capital ratio of the FHA mortgage insurance fund closer to positive territory but it fell just short at a negative 0.11%.
Despite the shortfall, independent auditors expect FHA will reach its statutory 2% capital level in two years.
This forecast will likely be challenged by congressional critics who believe the FHA program will need a government bailout soon.
The Federal Housing Administration FY 2013 actuarial report released Friday morning shows FHA capital ratio rebounded from a negative 1.44% in fiscal year 2012 to a negative 0.11% as of September 30.
The fund’s net worth rose to a negative $1.3 billion in FY 2013 from a negative $16.3 billion in the prior fiscal year.
“That is $15 billion improvement” says FHA commissioner Carol Galante. “The health of the underlying fund has improved and now is expected to reach its 2% capital ratio in fiscal year 2015, two years faster than was predicted two years ago.”
Behind the FHA Mutual Mortgage Fund’s performance is a strange divergence between the FHA forward single-family program and FHA’s HECM or reverse mortgage program.
The troubled HECM program needed a $1.7 billion mandatory appropriation from the Treasury and a $4.3 billion capital infusion from the FHA forward fund earlier this year.
“The HECM program now has $9.1 billion in capital resources,” said Galante during a press briefing. She also explained that the performance of the HECM program benefited from Moody's Analytics economic forecast which the auditors use in estimating the performance of the FHA insured portfolio.
Because actual house price appreciation was higher than forecast and interest rates remained lower, the actuarial report shows stronger HECM performance.
However, these same trends penalized the forward mortgage program. The FHA single-family program ended FY 2013 with a negative $8 billion net worth. But it’s still a $10 billion improvement over FY 2012.
Overall, the FHA MMI fund is projected to have a positive net worth of $15 billion in FY 2014 and $27 billion in FY 2015 when it will once again meet its 2% capital ratio requirement.
"Today’s report, while recognizing FHA’s current shortfall, shows clear improvement over last year and is a sign that the MMI Fund is headed in the right direction and could soon be positive,” says David Stevens, president and chief executive of the Mortgage Bankers Association.
“FHA continues to plays a critical role in the housing market, as the primary provider of credit for qualified first-time homebuyers and those with little money for a downpayment. Given the credit tightening occurring as a result of implementation of regulations such as the Ability to Repay/Qualified Mortgage (QM) rule, policymakers must continue to protect and improve the MMI fund in order to ensure that FHA can serve its critical mission in the single family market,” Stevens said.