How Reverse Mortgages Helped the FHA Fund Bounce Back

By Passy, Jacob | American Banker, November 24, 2015 | Go to article overview

How Reverse Mortgages Helped the FHA Fund Bounce Back


Passy, Jacob, American Banker


Byline: Jacob Passy

Mission accomplished ... or is it?

The Federal Housing Administration has celebrated the fact that its insurance fund had a capital ratio of nearly 2.1% in the recently concluded fiscal year; it was the first time the ratio had surpassed the congressionally mandated 2% level since 2008.

But a relatively small, highly volatile component -- the agency's reverse mortgage portfolio -- played a big role in bolstering the fund.

"While only 10% of the overall portfolio," the reverse mortgage program "has been responsible for a large part of the [fund's] value swing in recent years, which is something that policymakers might want to be looking at," said David Stevens, chief executive of the Mortgage Bankers Association.

Overall the fund was worth $23.8 billion, which was roughly $9 billion above projections for 2015, according to a report to Congress on the FHA fund's health issued last week. Of that margin, $8 billion stemmed from the reverse mortgage program, FHA chief Ed Golding told reporters in discussing the report.

Where did it come from?

"The health of the [FHA] fund is bolstered by improvements in the [reverse mortgage] portfolio attributable to changes in the actuarial forecasting of home values and interest rates, and recent policies such as changes to up-front [mortgage-insurance-premium] pricing and new rules requiring a financial assessment for all borrowers," National Reverse Mortgage Lenders Association Chief Executive Peter Bell said in a written statement responding to the news.

The results could represent a turning point for the FHA's reverse mortgage program. Since the portfolio was moved from a different fund to the current fund in 2008, critics have said it should be broken back out. These criticisms stem in part from the hefty influence the portfolio has had on perceptions of the other program covered by the FHA fund -- the much larger single-family mortgage program.

"Market observers generally look to the [fund's] capital ratio as a proxy for the health of the [single-family] portfolio, primarily because [it] makes up $1 trillion of the $1. …

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