A better performing FHA

The transfer of funds announced on Friday is a mandatory appropriation, called for in federal regulations, and is based on assumptions made in December 2012 about loan performance and recoveries.  As many readers will recall, FHA’s November Actuarial Report predicted its Mutual Mortgage Insurance Fund (MMIF) would experience a deficit mainly due to losses from the 2007 to 2009 legacy books and the reverse mortgage program.  The characteristics and stresses on FHA’s pre-2010 books of business continue to be the source of losses, while books from 2010 onward are performing profitably.

FHA’s books suffered like everyone else’s since the onset of the housing crisis.  However, the agency has taken a number of steps to address losses in its single-family portfolio, by raising mortgage insurance premiums, increasing down payment requirements for certain borrowers, eliminating the approval of loan correspondents, raising lender net work requirements, re-examining reverse mortgage policies, and establishing the Office of Risk Management.

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In fact, the accounting transfer announced Friday does not reflect today’s view of the MMIF performance, its current cash position, nor does it project the long-term fiscal health of the fund.

The next FHA Actuarial Report is scheduled for release in just a few months, and I fully expect it will reflect not only the positive in-house changes made by the agency, but also show an upward trajectory reflecting the housing recovery.  Housing demand is on the rise.  FHA, Fannie Mae and Freddie Mac are all generating profits.  We are clearly moving in the right direction.  FHA continues to serve first-time homebuyers and lower income families who have the dream of homeownership.

FHA has played, and will continue to play, a critical role in the housing market.  FHA provides to first-time homebuyers and lower income families services vital to health and growth of real estate finance market, particularly in lower wealth communities and neighborhoods.  In the last five years, FHA has helped almost 7 million families become homeowners or refinance into a more affordable loan – aiding the recovery of the housing market.

America’s economic strength relies upon a diverse marketplace with numerous private and public entities.  A fully-functioning real estate finance system must include an appropriate government back-stop, encourage private sector competition, ensure old behaviors never return, create a level playing field for lenders of all sizes, require adequate capital, and provide taxpayer protection.  It is imperative that policymakers, industry leaders and consumer advocates not overreact to today’s snapshot, and rather work collaboratively to maintain liquidity in the marketplace and move forward toward a safe, reliable, balanced and competitive housing market of the future.

Stevens is president and CEO of the Mortgage Bankers Association.

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