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TheStreet Open House

Federal Housing Administration Deficit Improves to $1.3B

NEW York (TheStreet) -- The Federal Housing Administration had a projected deficit of $1.3 billion at the end of September, down substantially from last year's estimate of $16.3 billion, according to an independent actuarial review released Friday.

The agency received a $1.7 billion infusion this year for the first time in its 79-year history to ensure that it had sufficient reserves to pay expected claims over 30 years.

But the long-term financial health of the FHA appears to be improving amid steps taken to shore up revenues, including increasing mortgage insurance premiums and strengthening underwriting standards.

The report says that with the latest improvement, the agency's Mutual Mortgage Insurance Fund could meet its required minimum 2% capital reserve ratio by fiscal year 2015, two years ahead of schedule. The current capital ratio is a negative 0.l1%.

The fund is also projected to have an economic networth of $27 billion at the end of 2015 and more than $80 billion in FY 2019.

What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market," said HUD Secretary Shaun Donovan. "We look to the future and remain committed to continuing our progress to strengthen the MMI Fund so that ladders of opportunity are available to all Americans for generations to come."

The FHA insures lenders against losses on loans with a downpayment as low as 3.5%. The agency's market share rose nearly fivefold in the wake of the housing bust, as it stepped in to support the mortgage market when private capital disappeared.

Most of the losses at the FHA stems from loans made between 2007 and 2009, when it stepped up its market share just as the economy slipped into recession.

Still, many agree that in the absence of the FHA and bailed-out giants Fannie Mae and Freddie Mac, the mortgage market would have simply frozen and the housing market would have suffered a much steeper decline.

The number of families with an FHA mortgage stood at more than 7.8 million at the end of September.

The FHA had tried to reduce its footprint in recent years. Endorsements have fallen from a peak of 1.8 million loans in 2009 to 1.3 million in 2013. Recently, it said it would reduce limits on loans for which it would provide insurance in high-cost areas from $729,750 to $625,500.

Early payment defaults on newly endorsed loans are at a 7-year low, as a result of tighter underwriting standards.

Serious delinquency rates over the past year have declined form 9.8% to 8.2% on a seasonally adjusted basis.

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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