Editor: David Reiss
Brooklyn Law School

November 16, 2015

FHA’s Clean Bill of Health

By David Reiss

HUD Secretary Castro

HUD Secretary Julián Castro

The Federal Housing Administration released its Annual Report to Congress on the Financial Status of the FHA Mutual Mortgage Insurance Fund. The MMIF covers the lion’s share of the FHA’s mortgage insurance obligations. In his forward to the report, HUD Secretary Castro focused on the achievement of two goals, the MMIF has “reached its congressionally mandated capital ratio” and it “reduced its annual mortgage insurance premium” which “opened the doors for tens of thousands of Americans to become homeowners or to refinance into a more affordable loan.” (2) Some commentators had been critical of lowering the premium before the MMIF reached its mandated capital ratio, but all’s well that ends well, or so it seems.

I was particularly struck by the key characteristics of FY 2015 FHA borrowers:

  • The average credit score for all FHA endorsements was 680, and the average loan size was $190,928 for all mortgages, and $186,176 for purchase mortgages.
  • 82 percent of FHA purchase loans (614,148 loans) were for first-time homebuyers.
  • In calendar year (CY) 2014, FHA provided financing for 43 percent of all African-American borrowers, and 44 percent of all Hispanic borrowers. In contrast, in CY 2014, FHA represented just 21 percent of the total purchase market.
  • African-American borrowers represented 10.4 percent of total FHA endorsements in FY 2015; Hispanic borrowers represented 17.4 percent of total FHA endorsements in the same period.
  • FHA assisted more than 57,990 senior households to age in place through the Home Equity Conversion Mortgage (HECM) [reverse mortgage] program.
  • At the state level, during CY 2014, FHA-insured loans represented at least 20 percent of all purchase activity in 32 states. In 12 states and Puerto Rico, FHA-insured lending represented a quarter of all 2014 purchase lending. Nevada, Puerto Rico, and Arizona had the highest proportion of FHA purchase activity in 2014, with FHA-insured loans representing 34 percent, 33 percent, and 31 percent of all purchase loans in those areas, respectively. Arizona and Nevada were particularly hard hit by the housing crisis, and FHA has played an important role in the recovery in those states. (6-7)

The FHA had an outsized role for the entire country after the financial crisis and it is still having an outsized role in many ways for many communities. The big issue going forward is whether the FHA will further lower its premiums in an attempt to reach more borrowers and if it can do so in a fiscally responsible manner.

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