Housing agency won’t need another bailout

A top government regulator for the housing industry will not need another taxpayer bailout this year.

The Federal Housing Administration’s (FHA) balance sheet has moved back into positive territory after the Mutual Mortgage Insurance (MMI) Fund rose in value by nearly $6 billion, giving it an overall value of $4.8 billion, according to a new report.

The improvement will prevent FHA from needing another cash infusion from the federal Treasury. In 2013, for the first time in the agency’s 80-year history, the FHA fund required $1.7 billion in taxpayer help to make up for loan losses and a reverse mortgage program that weighed on its finances.

{mosads}“This year’s report shows that the fundamentals of the fund are strong,” said HUD Secretary Juliàn Castro in a statement Monday.

“Over the past five years, FHA has taken a number of prudent actions to restore the fund’s fiscal health,” he said.

Overall, the agency’s fiscal situation showed a $21 billion improvement in the past two years following a series of changes that have bolstered the agency’s finances, according to the most recent independent analysis.

Still, the current capital ratio is .41 percent, which remains below the optimal mandated level of 2 percent for reserves.

“Today’s announcement makes clear that FHA is on the right track, and is appropriately recovering from its unprecedented work keeping our housing market afloat during the worst economic crisis in a generation,” said Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee.

“While the FHA has not made full recovery, it’s important to remember that it is far from bankrupt, holding approximately $40 billion in reserves and continuing to generate revenue.”

Following the housing crisis, the FHA has made strides in overhauling its single-family program by improving underwriting standards, loss mitigation policies, recovery strategies and premium levels, the agency said.

“FHA will continue to focus on meeting its mission of creating responsible access, investing in our economy and preserving pathways to the middle class,” said acting FHA Commissioner Biniam Gebre.

“We remain dedicated to giving more hard-working responsible families the chance to buy a home and not a returning to the days of reckless lending that caused so much pain for middle-class families and the economy,” he said.

Still, premiums are currently at an all-time high, and FHA will need to balance its policies to grow its reserves while increasing sustainable loan volumes.

The National Association of Realtors (NAR) estimates that in 2013, nearly 400,000 creditworthy borrowers were priced out of the housing market because of high FHA insurance premiums.

“By lowering its fees, FHA could provide greater access to homeownership for historically underserved groups,” said NAR President Chris Polychron.

During the past four years, the percentage share of first-time buyers using FHA-backed loans shrank to 39 percent from 56 percent.

“A shift in policy would also increase the volume of borrowers acquiring FHA-backed loans and contribute to the solvency of the MMI Fund,” Polychron said. 

A number of factors have helped boost the MMI fund’s health, including a 30 percent drop in seriously delinquent rates, a 68 percent improvement in recovery rates, a 63 percent reduction in foreclosure starts and an 85 percent drop in early payment defaults.

“This trend is good news for taxpayers and the program, as almost all of the vital metrics, including delinquencies, foreclosures, and recoveries on property disposition, continue to improve,” David Stevens, president and CEO of the Mortgage Bankers Association.

“Maintaining this trend will require FHA to continue its ongoing work to improve transparency and certainty around its loan quality assessment methodology, as well as to re-examine mortgage insurance premiums, both the amount and the structure,” Stevens said.