FHA Making Up for Last Year

Recently, according to this article from CNN Money, the U.S. Department of Housing and Urban Development projected that the FHA’s capital reserve fund will end the year with a positive balance of $7.8 billion.

That’s a stark contrast to last year.

In 2013, the FHA, which insures 40 million home mortgages, according to this article from the USA Today, was struggling with $5 billion in losses on its reverse mortgage program. So it needed a $1.7 billion infusion from the Treasury Department to build up its depleted capital reserves to the level mandated by Congress—2% of its $1.17 trillion in loan balances.

The FHA suffered big losses, also according to the USA Today, when many borrowers took large payments up-front and later ran into financial problems—often due to falling home values during the recession.

However, that was the first time in the agency’s 80-year history when it required such a bailout.

And besides, who didn’t take a beating during the housing bust.

The FHA was nearly the only agency during the recession to back loans for those who had little money saved up for a down payment. At one point, the FHA insured more than 25 percent of all loans, up from the low single digits during the boom years.

To help restore its reserves, the agency has raised its insurance premiums and now requires borrowers to keep paying the premium for the entire life of the loan.

There have also been fewer defaults, requiring the agency to make fewer insurance payouts. And by the end of 2013, the delinquency rate for FHA loans was 10.47%, nearly four percentage points lower than the high of 14.36% seen in mid-2009.

FHA said lenders have also been better at working with delinquent borrowers to help them prevent foreclosure.

The future may always be uncertain, but it certainly is looking good for the FHA. We’ll keep you up-to-date on all the latest news from the housing front.