Tag Archives: annual report

FHA Annual Check-up

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The Department of Housing and Urban Development released its Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund. The MMIF fund is the FHA’s main vehicle for insuring mortgages. As we saw last week, FHA reverse mortgage (formally known as “Home Equity Conversion Mortgage” or “HECM”) portfolio is not doing so well. FHA standard (sometimes referred to as “forward”) mortgages are doing better, although their performance is also slipping.

The MMIF declined from its 2.35 percent FY 2016 Capital Ratio to 2.09 percent. This still exceeds its statutorily-required level of 2.00 percent.  The Economic Net Worth of the MMIF was $25.6 billion while the MMIF Insurance-in-Force was approximately $1.23 trillion at the end of FY 2017. The decline was driven by the negative Economic Net Worth of the reverse mortgage portfolio, as the capital ratio for the forward mortgage portfolio on its own was 3.33%.

The report contains a multitude of useful tables and charts about the FHA’s mortgage portfolio. The FHA has an 18 percent share of the mortgage market, which is pretty high. (Table A-2) Indeed, it is in the same range of its market share during the financial crisis years (2008-2010). The FHA remains a strong force in the first-time homebuyer market, with an 82.2 percent share. (Table B-2)

The FHA’s objectives for FY 2018 are worth reviewing:

Play a Significant Role in Disaster Recovery. In the wake of Hurricanes Irma, Harvey, and Maria, and wildfires in California, in FY 2017 and the first part of FY 2018, FHA has played a significant role in relief and recovery efforts in affected areas, while taking immediate actions to protect its Single Family assets and financial exposure. (78)

Make Necessary Changes to the Home Equity Conversion Program (HECM). During FY 2017, FHA revised the HECM initial and annual Mortgage Insurance Premiums (MIPs), and Principal Limit Factors (PLFs). These revisions were necessary to enable FHA to continue to endorse HECM loans in FY 2018, protect the program for seniors, and balance serving FHA’s mission with taxpayer protection. (79)

No less important than these objectives is the FHA’s second-to-last one, Technology Modernization:

FHA is working to update its systems over the coming years to allow the Agency to work more effectively with lenders participating in the program, while operating FHA with greater efficiency and control. The technology systems that support FHA’s Single Family business have an average age of more than 18 years, with the Computerized Homes Underwriting Management System (CHUMS) exceeding 40 years. Similarly, the systems supporting the servicing, default, claims and REO areas have an average age of 14 years. FHA’s systems have been maintained, modified and enhanced over the years, but it has become fundamentally difficult and exceedingly expensive to maintain systems beyond their usable life. FHA’s outdated systems make it more difficult to work with lenders and to collect and manage important data. FHA remains a largely paper-processing entity while the rest of the industry has increasingly migrated to digital processes. FHA needs systems that can capture and effectively process the extensive volumes of data now in use, with enhanced storage and processing capabilities to handle the migration from paper forms to digital ones. Additionally, FHA requires the ability to analyze and manage insured loans comprehensively over the many phases of the mortgage life cycle. (80)

When you stop and think about how bad the state of the FHA’s technology is, you think that maybe this should be their top priority.

National Survey of Mortgage Originations

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survey

The Federal Housing Finance Agency has issued a request for comments on the National Survey of Mortgage Originations. The NSMO is

a recurring quarterly survey of individuals who have recently obtained a loan secured by a first mortgage on single-family residential property. The survey questionnaire is sent to a representative sample of approximately 6,000 recent mortgage borrowers each calendar quarter and typically consists of between 90 and 95 multiple choice and short answer questions designed to obtain information about borrowers’ experiences in choosing and in taking out a mortgage.

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The NSMO is one component of a larger project, known as the “National Mortgage Database” (NMDB) Project, which is a multi-year joint effort of FHFA and the Consumer Financial Protection Bureau (CFPB) (although the NSMO is sponsored only by FHFA). The NMDB Project was created, in part, to satisfy the Congressionally-mandated requirements of section 1324(c) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008 (Safety and Soundness Act). Section 1324(c) requires that FHFA conduct a monthly survey to collect data on the characteristics of individual prime and subprime mortgages, and on the borrowers and properties associated with those mortgages, in order to enable it to prepare a detailed annual report on the mortgage market activities of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) for review by the appropriate Congressional oversight committees. Section 1324(c) also authorizes and requires FHFA to compile a database of timely and otherwise unavailable residential mortgage market information to be made available to the public. (81 F.R. 62889)

Obviously, this is another post on a technical subject that is not for the faint of heart, but it is very important for the health of the mortgage market. During the Subprime Boom of the early 2000s, mortgage characteristics changed so quickly that information became outdated within months.  Policymakers and academics did not have good access to newest data and thus were operating, to a large extent, in the dark.

The information in the NSMO will not only help regulators, but will also outside researchers to “more effectively monitor emerging trends in the mortgage origination process . . ..” (81 F.R. 62890) The FHFA requests comments on whether “the collection of information is necessary for the proper performance of FHFA functions, including whether the information has practical utility.” (Id.) The FHFA is also looking for comments on ways “to enhance the quality, utility, and clarity of the information collected.” (Id.) Those with an interest in securing a safe future for our mortgage markets should take a look at the survey instrument (attached to the Comment Request) and respond to the FHFA’s request. Comments are due on or before November 14, 2016.

Friday’s Government Reports

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  • The U.S. Department of Housing and Urban Development (HUD) released its Annual Report to Congress on the Mutual Mortgage Insurance Fund, an independent actuarial analysis that found capital reserves at 2.7%.  Congress mandates a minimum 2% reserve. The findings also reveal a 3rd consecutive year of growth for the fund which is now worth 23.8 Billion (up 19 billion from 2014).

Friday’s Government Reports

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  • The Federal Housing Finance Agency (FHFA) announced that it plans to expand the Neighborhood Stabilization Initiative into 18 additional Metropolitan areas -the program gives community organizations an “advanced first look” opportunity to purchase foreclosed Fannie Mae and Freddie Mac properties, before they are offered to the general public. This interactive map provides more detail about the 18 Metropolitan areas targeted by the program.
  • FHFA has also released it’s Annual Housing Report for the 2014 activities of Fannie Mae & Freddie Mac – in 2014 they acquired $584 billion of loans on single-family owner-occupied housing and provided funding for 738,466 multifamily rental units in 2014.
  • U.S. Department of Housing and Urban Development (HUD) releases it’s 50th Anniversary Commemorative Book, in which NYU’s Furman Center Contributes a chapter, Race, Poverty & Federal Rental Housing Policy discussing the key goals of the agency, evaluating its progress and identifying “key tensions running through its work.”  In another Chapter, Housing Finance in Retrospective authors Wachter & Acolin trace the impact of HUD on the U.S. market.

Friday’s Government Reports Roundup

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Friday’s Government Reports Roundup

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SEC Update on Rating Agency Industry

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The staff of the U.S. Securities and Exchange Commission has issued its Annual Report on Nationally Recognized Statistical Rating Organizations. The report documents some significant problems with the rating agency industry as it is currently structured. The report highlights competition, transparency and conflicts of interest as three important areas of concern.

Competition. There are some of the interesting insights to be culled from the report. It notes that “some of the smaller NRSROs [Nationally Recognized Statistical Rating Organizations] had built significant market share in the asset-backed securities rating category.” (16) That being said, the report also finds that despite “the notable progress made by smaller NRSROs in gaining market share in some of the ratings classes . . . , economic and regulatory barriers to entry continue to exist in the credit ratings industry, making it difficult for the smaller NRSROs to compete with the larger NRSROs.” (21)

Transparency. The report also notes that “there is a trend of NRSROs issuing unsolicited commentaries on solicited ratings issued by other NRSROs, which has increased the level of transparency within the credit ratings industry. The commentaries highlight differences in opinions and ratings criteria among rating agencies regarding certain structured finance transactions, concerning matters such as the sufficiency of the credit enhancement for the transactions. Such commentaries can serve to enhance investors’ understanding of the ratings criteria and differences in ratings approaches used by the different NRSROs.” (23) The report acknowledges that this is no cure-all for what ails the rating industry, it is a positive development.

Conflicts of Interest.Conflicts of interest have been central to the problems in the ratings industry, and were one of the factors that led to the subprime bubble and then bust of the 2000s.  The report notes that the “potential for conflicts of interest involving an NRSRO may continue to be particularly acute in structured finance products, where issuers are created and operated by a relatively concentrated group of sponsors, underwriters and managers, and rating fees are particularly lucrative.” (25) There is no easy solution to this problem and it is important to carefully study it on an ongoing basis.

The staff report is valuable because it offers an annual overview of structural changes in the ratings industry. This year’s report continues to highlight that the structure of the industry is far from ideal. As the business cycle heats up, it is important to keep an eye on this critical component of the financial system to ensure that rating agencies are not being driven by short term profits for themselves at the expense of long-term systemic stability for the rest of us.