Auditor Expects Surge in FHA Originations to Continue

The Federal Housing Administration just completed one of its best years ever in terms of loan originations and the mortgage insurer's auditor expects the surge in FHA originations to continue for several years. FHA endorsed a record 154,240 single-family loans in FY 2008 and it is projected to endorse 280,400 loans in FY 2009 and 331,100 in FY 2010, according to a FY 2008 actuarial review. However, declining house prices are expected to undermine the performance of FY 2008 loans and result in high claims rates. The independent auditor pegged the economic value of the FY 2008 book of business at a negative $3.6 billion over the life of the loans. The auditors also reduced the estimated economic value of the FHA Mutual Mortgage Insurance fund by 39% to $12.9 billion. This reduction, combined with a 29% increase in the number of insured FHA loans, decreased the capital ratio of the MMI fund to 3% from 6.4% in FY 2007. The auditors estimate that loans originated in the current year (FY 2009) will perform better and have a positive $2.4 billion economic value.