Summary

In response to a congressional request, GAO reviewed the Federal Housing Administration's (FHA) Section 203(b) insurance program under the Mutual Mortgage Insurance Fund, focusing on the: (1) differences between FHA accounting methods and private mortgage insurers' requirements; and (2) potential impact of the program on U.S. Treasury cash flows and the federal budget.

GAO found that: (1) as of September 1987, the Fund had $205 billion in insurance-in-force and $3.4 billion in total government equity; and (2) three other FHA funds had a total of $72 billion in insurance-in-force and had accumulated a deficit totalling $2.2 billion, although such deficits were historically reimbursed by subsequent appropriations. GAO also found that: (1) between 1979 and 1987, insurance written in economically depressed regions that had high default and foreclosure rates did not exceed 25 percent of the Fund's insurance portfolio; (2) during that same period, the Fund showed an insurance-writing trend with more favorable loan-to-value ratios that usually had lower claim rates and losses; (3) the average Fund-insured mortgage was lower than the national average after 1982; (4) although an audit concluded that the Fund was in sound financial condition, it also found that the Fund would barely survive under more severe regional stress without Treasury support; (5) FHA recognized losses as claims were filed near foreclosure, while private mortgage insurers recognized losses based on defaults, about 1 year earlier than the foreclosure date, but a 1987 audit resulted in FHA recognizing losses based on the default date; (6) in 1988, the Fund showed a new outlay of $452 million due to a decline in new businesses and record high insurance claims; and (7) during a federal deficit or when the Fund generates an excess of premium and property sales receipts over claim payments, the amount the Treasury must borrow is reduced, but when FHA pays more in claims, the Treasury must obtain funds through other revenue sources.