Today, the HUD released its Fiscal Year (FY) 2013 Annual Report to Congress on the Financial Status of the Mutual Mortgage Insurance (MMI) Fund, which reports the results of an independent actuarial evaluation of the Fund. According to the independent actuary, the Fund has gained $15 billion in value and now stands at an economic net worth of negative $1.3 billion with a capital reserve ratio of negative 0.11 percent. This is a 92 percent improvement in the capital reserve ratio compared to last year. The independent actuary anticipates that under its model, and absent any policy changes, the Fund will reach the mandated two percent reserve ratio by 2015 – two years sooner than previously estimated.
At FHA, we have taken a number of steps to restore capital and improve the Fund’s health including raising premiums multiple times and tightening credit policies. We have also established a minimum credit score, raised net worth requirements for lenders, strengthened lender quality assurance and enforcement, and expanded our use of efficient strategies to improve recovery rates associated with defaulted assets.
Our actions, coupled with a recovering economy, have directly led to the Fund’s improvement. The Annual Report explains that the Fund’s improved financial status is driven by the high value of the FY 2013 book of business and the impact of new or refined policies—especially the expanded use of alternative disposition strategies.
The initiatives that led to the Fund’s improvement are part of a wider effort to transform the way we do business. We are committed to operating more efficiently and to making it easier for our partners to do business with us. First, we have begun the process of consolidating FHA’s single family administrative guidance, combining more than 900 Mortgagee Letters into a single authoritative guide on originating and servicing FHA-insured loans. The updated handbook is aligned with our lender quality assurance efforts. Our goal is to establish clear, consistent policies and expectations that make it easier for lenders to follow our guidance.
Although we have done a substantial amount of work to reduce losses on legacy loans and to ensure the origination of strong, sustainable new loans, there is more we would like to do. We need Congress to help by passing legislation that gives FHA the tools to more effectively monitor its portfolio, protect against emerging risks, and take enforcement actions against all classes of lenders.
What is clear from the independent actuary’s assessment is that the steps this Administration has taken have improved the health of the Fund significantly. We are starting to turn the page on the financial crisis that brought many institutions to their knees. As the value of the Fund continues to stabilize, FHA will focus on protecting the progress made toward restoring the Fund’s health while simultaneously playing its critically important role of ensuring access to credit for qualified borrowers in underserved markets. HUD’s Annual Report to Congress on the Financial Status of the MMI Fund and the accompanying actuarial reviews are available on HUD.gov.