Home values have been rising the past few months, a good sign for the Federal Housing Administration’s single-family insurance fund, which has been dangling on the edge of insolvency.
Later this fall, the agency will release a fiscal year 2012 actuarial report that will provide a clear picture on the fund’s financial strength.
Prepared by independent auditors, the annual report relies heavily on home prices in determining the fund’s capital reserves along with the profits or losses on the $1.1 trillion portfolio.
The FY 2011 actuarial study released last November showed the fund had a slim capital ratio of 0.24%, following a long period of falling house prices.
However, values have turned up this spring, which could bolster the fund’s capital position and keep it from sliding into insolvency.
Last year, using estimates from Moody’s Analytics, auditors expected the “housing recession” would continue through the first half of 2012 and values would not rise until later in the year.
But by some measures, values rose 3% to 4% during the first half, which bodes well for the upcoming FY 2012 actuarial report,
“Probably the most encouraging data for the actuarial review are the recent reports on home prices,” he said. “They have all been far better than was expected in last year’s actuarial report.”
Moody’s Analytics senior director Celia Chen told National Mortgage News that the housing market has definitely improved and home prices are starting to rise. She cautioned, however, that some of the increases could be reversed in the second half or early next year as the percentage of distressed sales increases.
Even if prices fall back a bit, “We are past the bottom,” Chen said.
In 2013, she expects prices will be flat or appreciation will be “very weak.”
Meanwhile, FHA has 7.6 million of insured mortgages on its books. Roughly 9.4% of the loans are 90 days or more past due.
FHA projects it will be paying claims on defaults and foreclosed properties at nearly twice the current rate. But many foreclosures have been held up due to the judicial process and a slowdown caused by the robo-signing negotiations and subsequent settlement.
FHA officials are bracing for a large spike in insurance claim payments now that servicers have adjusted to the requirements of the $25 billion settlement with the state attorneys general.
“We are beginning to see a breaking of the foreclosure backlog that has been affecting the entire mortgage industry since the start of fiscal year 2011,” the agency says in its quarterly report.
FHA paid a record number of foreclosure claims in the third quarter of FY 2012, which ended June 30. “Post-settlement claims started to come to FHA in February,” the report says.
Claims on defaulted FHA single-family loans have been steadily rising over the past four quarters.
The FHA insurance fund paid $5.3 billion in claims in the third quarter of FY 2012, up from $3.8 billion during the same quarter in FY 2011.
However, FHA’s total capital reserves have declined by only $100 million to $31.6 billion over those four quarters, partially due to increasing revenue from mortgage insurance premiums.
Meanwhile, the government insurer’s cash flow has turned decidedly negative. The MIF had negative cash flow of $1.7 billion in the third quarter compared to net outflows of $42 million a year ago.
Many in Congress are preparing for the worse. Last week, the House of Representatives passed a bill that requires FHA officials to develop a plan on how they intend to avoid a bailout of the financially strapped mortgage insurance fund. The full House passed the measure 402-7.
The bill (H.R. 4264) has been sent to the Senate Banking Committee where it is now under review. If the Senate passes the FHA Emergency Solvency Act, the government insurer would have 30 days to submit a solvency plan to Congress.
