HUD Archives: News Releases

FHA Home Mortgage Insurance Program Strong, Says Independent Study

WASHINGTON - An actuarial report issued today by the accounting firm of Deloitte & Touche says the Federal Housing Administration's Mutual Mortgage Insurance Fund, that helps low- and moderate-income families become homeowners, is in its strongest financial condition since at least 1989, when the first annual independent actuarial study of the MMI Fund was conducted. The Fund's capital adequacy ratio is 3.75 percent, well above the Congressionally mandated minimum of 2.0 percent.

FHA mortgage insurance encourages mortgage companies to make loans to borrowers who might not otherwise be able to meet conventional underwriting requirements, by protecting the mortgage company against loan default.

"Homeownership in America continues to set records," said Housing and Urban Development Secretary Mel Martinez. "FHA is the federal government's largest program to promote homeownership, and this report shows that we can continue helping thousands of families to realize the American dream."

Martinez noted that the capital ratio increased even though the economy has been in a recession. "Housing has been the strongest sector of the economy, and has helped to moderate the economic problems of the last year," he said. He cautioned, however, that FHA claims typically are highest in the early stages of an economic recovery.

The Deloitte & Touche study also reported that the economic value of the MMI Fund rose to $18.5 billion, an increase of $1.5 billion from fiscal year 2000. The economic value of the fund is defined as the sum of existing capital plus the present value of current insurance in force.

"This new study shows that FHA is working for America's families," Martinez said. "Very few programs can say they help millions of families realize the American dream without costing taxpayers a penny."

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. The program is sustained entirely by borrower premiums. Since 1934 it has enabled almost 30 million American families who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages.

FHA now insures more than 6.6 million single-family mortgage loans with a total value of $499 billion. When homeowners fail to make payments on mortgages insured by FHA, the agency first tries to help them stay in their homes through foreclosure avoidance. If this is not successful, the lender forecloses on a home and conveys it to FHA in exchange for FHA payment of the outstanding mortgage balance. FHA then puts the home up for sale.

FHA-insured loans also benefit homebuyers in these ways:

• FHA downpayments of three percent are lower than the minimum that many lenders require for non-FHA mortgages. Higher downpayments are a major roadblock to homeownership.
• FHA's requirement for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers.
• FHA permits a borrower to carry more debt than a private mortgage insurer typically allows.

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Content Archived: April 9, 2010