The Federal Housing Administration ended fiscal 2010 with a cash reserve ratio of just 0.50%, a slight decline from a year earlier, but strong enough that Congress will not have to use taxpayer money to bolster the agency's insurance fund.
The results would have been stronger if not for continued problems with the FHA's reverse mortgage program.
Department of Housing and Urban Development officials were relieved that the capital cushion did not fall below zero, which would have forced Congress to appropriate money to keep the Mutual Mortgage Insurance Fund in the black. Still, the capital level remains well below the 2% statutory minimum.
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 showed that the capital ratio of the FHA insurance fund edged down from 0.53% in fiscal 2009 to 0.50% in fiscal 2010, which ended Sept. 30.
The actuaries based their assumptions on FHA losses using home price forecasts provided by Moody's Analytics. The actuaries expect losses on FHA loans originated in fiscal 2007 and 2008 to continue. However, those losses are being offset by higher quality originations in fiscal 2009 and 2010 combined with a recent increase in mortgage insurance premiums. The FHA's capital ratio is projected to exceed 2% in fiscal 2015.
The FHA Home Equity Conversion Mortgage program ended fiscal 2010 with a negative 1% capital ratio. Without the losses in the reverse mortgage program, the capital ratio for the overall FHA single-family program would have been 0.79%.