Mortgage

Regardless of increased defaults, the FHA's capital was borne by the appreciation in actual property costs

WASHINGTON – A key health indicator for the Federal Housing Agency's Mortgage Insurance Fund hit a high since 2007 as a sharp appreciation in property prices more than offset the economic damage caused by the pandemic.

The FHA announced on Friday in its annual actuarial report that the fund's capital reserve ratio had increased from 4.84% in the previous year to 6.10% in fiscal 2020. Meanwhile, the fund's economic wealth rose to $ 78.95 billion – more than double what it was two years ago.

The FHA is required by law to maintain a buffer of at least 2%.

"Thanks to this government's focus on prudent capital management, the FHA entered the pandemic with a strong capital position that will help us weather the immediate effects of COVID-19," FHA Commissioner Dana Wade said on a call to reporters.

In general, the FHA mortgage fund owed much of its 2020 success to a sharp appreciation in house prices that "dwarfed other negative economic developments," Wade said, adding that the FHA's modeling showed a decline in appreciation Real estate prices by 1% would be a slap of 1.3% for mortgage insurance.

Still, the FHA's portfolio was not completely immune to COVID-19. The agency's portfolio of badly criminal loans grew by $ 117 billion thanks to provisions in the Congressional stimulus package earlier this year that allowed borrowers to seek indulgence for up to a year.

The value of serious crime loans was US $ 158 billion as of September 30, surpassing the previous high of US $ 105 billion in 2012. The serious crime loan rate in the FHA portfolio reached 11.59%. However, the FHA said the interest rate is expected to rise as the agency tends to serve borrowers with lower credit scores and higher debt.

"Given these and other features, the COVID-19 pandemic has hit FHA borrowers disproportionately than those served in conventional and private markets," the agency's report said.

The early payment default rates also remain at a “historically high level” and reached 9.27% ​​at the end of the fiscal year, said Wade.

Given these factors, Wade said the FHA was unlikely to cut insurance premiums despite calls from the mortgage industry.

"I think FHA really needs to continue to be in a strong capital position to tackle this as servicing these loans will be their # 1 priority," said Wade.

The FHA Reverse Mortgage, or Home Equity Conversion Mortgage Program, which has historically been a drag on the agency's finances, has improved significantly this year with a capital ratio of -0.78%, versus the rate of -9.22% in 2019.

However, the reverse mortgage portfolio continues to be an issue for the FHA, Wade said.

“I think the most important thing about HECM is that this modeling is done despite a very positive trend that we have seen and forecast for an appreciation in property prices. That is certainly a concern of ours and I think we need to continue vigilantly monitoring HECM, ”she said.

However, the FHA report contained several positive aspects. The proportion of first-time buyers in the agency's loan portfolio rose to 83.10%, a new high. And the FHA insured more loans for its main borrowers, which include first-time buyers and lower-income homebuyers, in the second half of the year, despite limited credit in the market.

The average debt-to-income ratio for FHA borrowers also declined for the first time in seven years, and the borrower's average creditworthiness rose slightly to an average of 672, the agency said.

"Honestly, a lot of it has to do with the credit crunch introduced by private sector participants this year," Wade said, referring to lenders raising credit standards for fear that some borrowers will not be in the pandemic Would be able to repay a loan loan.

And while positive, FHA credit levels with debt-to-income ratios of 50% or more remain "at historically elevated levels," the FHA report said.

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