FHA Loan Insurance Fund Is Back in the Black, Report Shows

The U.S. government’s mortgage insurance fund posted its first positive balance in two years after boosting premiums and cutting losses on loans.

The Federal Housing Administration projects a value of $4.8 billion for fiscal 2014, according to an independent analysis released today. The total, which leaves the fund below it’s congressionally mandated level for a sixth straight year, will mean the FHA won’t need aid to balance its books.

“It’s certainly good news that the fund is back in the black,” Julian Castro, secretary of the Department of Housing and Urban Development, which oversees the FHA, said during a briefing with reporters. “It means that the FHA can fulfill its traditional role of providing access to credit.”

The agency is required to keep enough cash on hand to cover all projected losses in its $1.1 trillion portfolio. The fund must also maintain a cushion of 2 percent of its value, a level it isn’t projected to reach until fiscal 2016.

The fund required a $1.7 billion cash infusion from the Treasury in 2013 amid losses on loans it backed after the housing bubble, the first draw in the agency’s 80-year history.

The improvement in the FHA’s circumstances raises questions about whether the agency will attempt to reach more borrowers by cutting the prices it charges to guarantee loans. The FHA, created in the wake of the Great Depression to aid first-time and lower-income homebuyers, raised fees and premiums as it attempted to reverse losses.

Increased Premiums

Castro declined to say whether the agency would now consider reducing up-front fees or annual premiums, which have increased to 1.35 percent from 0.55 percent in 2011.

“That analysis has not yet been done,” he said.

Consumer advocates and industry groups including the National Association of Realtors and the Mortgage Bankers Association have been urging the FHA to consider cutting its costs because many first-time buyers and families with modest incomes are priced out of the market.

The agency might need to cut its prices to prevent itself from being left with a pool of lower-credit borrowers as those with better credit turn to cheaper loans backed by Fannie Mae and Freddie Mac, MBA President and Chief Executive Officer David H. Stevens said in a telephone interview.

The actuarial report “clearly seems to highlight the possibility that there are some excess fees being charged, at a time when perhaps they should be more focused on ensuring relatively fair access to credit,” said Stevens, who was FHA commissioner from 2009 until 2011.

Republican Criticism

Republican lawmakers who have been critical of the fund’s performance said they are concerned that its reserves are still below mandated levels.

“Failure to meet this requirement leaves hardworking American taxpayers vulnerable to another government bailout,” Representative Randy Neugebauer, a Texas Republican who serves on the House Financial Services Committee, said in an e-mailed statement. “FHA is not just broke, it is broken and in need of long-term structural reform.”

The fund faced headwinds last year: Reverse mortgages, which allow homeowners 62 or older to borrow against their equity and repay the balance when their properties are sold, caused $7 billion in losses last year.

Increases in premiums and a decline in refinancing also drove down FHA’s volume, cutting into the revenue it counts on to shore up its fund. Loan endorsements in the first three quarters of fiscal 2014 were 47 percent lower than in the same period a year earlier. The agency now backs about 22 percent of loans for home purchases.

Last year’s actuarial report projected that the insurance fund had a $1.3 billion shortfall, down from a $16.3 billion shortfall in 2012.

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