Lower credit losses and higher premium revenues pushed the capital ratio of the Federal Housing Administration's mortgage insurance fund closer to positive territory and the agency says it is on pace to reach its statutory capital requirement two years ahead of schedule.
The FHA's fiscal year 2013 actuarial report released Friday morning shows that its capital reserve stood at a negative $1.3 billion at Sept. 30, compared to negative $16.3 billion a year earlier.
As a result, its capital ratio rebounded from negative 1.44% in fiscal year 2012 to a negative 0.11% as of Sept. 30, and the FHA says it is on track to reach its statutory 2% capital requirement by 2015.
"That is a $15 billion improvement" FHA commissioner Carol Galante said in response to the independent auditor's report. "The health of the underlying fund has improved and now is expected to reach its 2% capital ratio in fiscal year 2015, two years faster than was predicted two years ago."
This forecast, though, will likely be challenged by critics in Congress who believe that the FHA program will soon need a hefty bailout from the Treasury Department. The agency had never had to tap the Treasury for funds in its 80-year history, but losses in recent years, particularly in its reverse mortgage program, forced it in September to ask for $1.7 bailout to shore up its finances. Commissioner Carol Galante later said that the request was based on old accounting rules and that the agency didn't actually need the money.
The FHA says it has over $48 billion in liquid assets to pay expected claims.
Jeb Hensarling, R-Tex., said Friday that the actuarial report was 'bad news' for taxpayers, seizing on the fact that the statutory capital is still in negative territory.
"It's been barely two months since hardworking taxpayers were forced to bailout the FHA with $1.7 billion and we're already faced with the prospect of another bailout for the FHA next year," he said in a statement.
Housing and Urban Development Secretary Shaun Donovan did not address the issue of a future bailout, but he is asking Congress to take additional steps in the next year to shore up the agency's Mutual Mortgage Insurance Fund.
Specifically, it is asking for more enforcement authority to ensure loans are being serviced properly; to improve monitoring of mortgage servicers; to beef up its risk management - all areas that could help it avoid hefty losses, according to Donovan.
"To completely stabilize the fund for future generations, we will need help from Congress," Donovan wrote in letter to lawmakers.
The troubled reverse mortgage program needed a $1.7 billion mandatory appropriation from the Treasury and a $4.3 billion capital infusion from the FHA forward fund earlier this year.
"The [reverse mortgage] program now as $9.1 billion in capital resources," Galante said during a press briefing. She also explained that the performance of the program benefited from a Moody's Analytics economic forecast, which the auditors use in estimating the performance of the FHA insured portfolio.
Because actual house price appreciation was higher than forecast and interest rates remained lower, the actuarial report shows stronger reverse mortgage performance.
However, these same trends penalized the single-family mortgage program. The FHA single-family program ended fiscal year 2013 with a negative $8 billion net worth, though that was still a $10 billion improvement from a year earlier.
Overall, the FHA Mutual Mortgage Insurance fund is projected to have a positive net worth of $15 billion in fiscal year 2014 and $27 billion in fiscal 2015.
"Today's report, while recognizing FHA's current shortfall, shows clear improvement over last year and is a sign that the MMI Fund is headed in the right direction and could soon be positive," David Stevens, the president and chief executive of the Mortgage Bankers Association, said in a statement.
"FHA continues to plays a critical role in the housing market, as the primary provider of credit for qualified first-time home buyers and those with little money for a down payment. Given the credit tightening occurring as a result of implementation of regulations such as the Ability to Repay/Qualified Mortgage (QM) rule, policymakers must continue to protect and improve the MMI fund in order to ensure that FHA can serve its critical mission in the single family market," Stevens said.
Kate Berry contributed to this story.