Editor: David Reiss
Brooklyn Law School

December 4, 2017

Net Losses in FHA’s Annual Management Report

By David Reiss

The Federal Housing Administration released its Annual Management Report for Fiscal Year 2017. As always, it is good to review what the FHA has accomplished and the challenges it faces:

FHA is the largest provider of mortgage insurance in the world. Since its inception, FHA has insured over 47.5 million single family homes and 48 thousand multifamily and healthcare project mortgages. Through its insurance programs, FHA supports the homeownership goals of qualified individuals and families, and enables multifamily and hospital production that meets the needs of communities across the country. Over the course of its history, FHA has been a critical player in the U.S. housing market, including serving millions of first-time and low-to-moderate income homebuyers; stepping in as a countercyclical backstop during times of economic stress; and providing relief to borrowers affected by disasters. In addition, through housing counseling programs, FHA also offers assistance to individuals and families to help them make independent financial decisions that can lead to greater long-term financial success. (5)

Some of the data highlights from the report include the following:

  • The FHA has over $1.38 trillion in insurance-in-force
  • In fiscal year 2017, FHA endorsed 1,246,440 single family forward mortgages totaling $251 billion.
  • 82.2 percent of FHA purchase-loan endorsements were for first-time homebuyers.
  • 33.7 percent of all borrowers (both home purchase and refinance) were minority borrowers.
  • The number of FHA forward mortgage borrowers in fiscal year 2017 classified as low or moderate-income households represented 56.4 percent of all such households purchasing or refinancing their homes nationwide.
  • Home Equity Conversion Mortgage (also known as reverse mortgage) endorsements increased from 48,868 to 55,291.

I was confused by the following passage and would love to hear from FHA nerds who can explain it to me:

In fiscal year 2017, FHA reported a net loss. The most important facet of FHA’s cost and revenue activity is the treatment of loan guarantee subsidy cost. Loan guarantee subsidy cost is the estimated long-term cost to FHA of a loan guarantee calculated on a net present value basis, excluding administrative costs. The cost of a loan guarantee is the net present value of the estimated cash flows paid by FHA to cover claims, interest subsidies, and other requirements as well as payments made to FHA, including premiums, penalties, and recoveries also included in the calculation.

FHA had a net program loss in fiscal year 2017. Single Family and HECM Gross Costs with the Public increased by $17,845 million and $22,213 million, respectively. The program cost difference is primarily due to the increases in the re-estimates and interest expenses relating to Single Family and HECM. Re-estimates are the recalculation of subsidy costs and are performed annually. The increases in re-estimate and interest expenses were the primary drivers for the over-all program cost increase in fiscal year 2017, compared to fiscal year 2016. (49)

I am not sure how serious of a problem this is and have not heard about it from any news outlets. If any readers can shed some light on it, it would be much appreciated.

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