The Federal Housing Administration ended fiscal 2010 with a cash reserve ratio of just 0.50%, a slight decline from the same period a year ago, but strong enough that Congress will not have to use taxpayer money to bolster the fund.

The performance of the Mutual Mortgage Insurance Fund (MMIF) would have been stronger if not for continued problems with the agency's reverse mortgage program.

Department of Housing and Urban Development officials are relieved that the capital cushion did not fall below zero which would have forced Congress to appropriate money to keep the MMIF in the black.

Still, the single-family program continues to operate at a capital level well below the 2% statutory minimum.

"While we need to continue to carefully manage risk, the report shows the MMI Fund remaining self-sufficient in every scenario tested by the actuaries," said HUD secretary Shaun Donovan.

HUD released the results of the independent actuarial review late Monday in its annual report to Congress on the status of the FHA insurance fund.

The report shows the capital ratio of the FHA MMIF edged down from 0.53% in FY 2009 to 0.50% in FY 2010, which ended Sept. 30.

The actuaries based its assumptions on FHA losses using home price forecasts provided by Moody's Analytics.

Moody's believes homes prices will decline by just over 3% in FY 2010 with a 1% decline in FY 2011. Overall, price appreciation is forecasted to be under 3% per year through 2020 in markets served by FHA.

The actuaries expect losses on FHA loans originated in FY 2007 and 2008 to continue. However, those losses are being offset by higher quality originations in FY 2009 and FY 2010 combined with a recent increase in mortgage insurance premiums.

The net income from FY 2009-2010 books of business and the higher premiums can "both be used to offset claim expenses in the earlier books and to start rebuilding FHA's capital cushion," the HUD secretary said.

FHA's capital ratio is projected to exceed 2% in FY 2015.

Meanwhile, the FHA Home Equity Conversion Mortgage program ended FY 2010 with a negative 1% capital ratio. Without the losses to the reverse mortgage program, the capital ratio for the FHA single-family program would have been 0.79%.

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