The FHA Single Family Insurance Program: Performing a Needed Role in - - PowerPoint PPT Presentation

The FHA Single Family Insurance Program: Performing a Needed Role in the Housing Finance Market

Presented by:

Edward Szymanoski

US Department of Housing and Urban Development Office of Policy Development and Research

November 8, 2012

• This paper provides useful facts, descriptions of policies undertaken, and

information about FHA and its history that can inform debates about FHA’s future role.

• The first section provides an historical overview of FHA's role in stabilizing

housing markets, setting market standards, providing information, and addressing market failures such as credit rationing.

• The second section shows how this role provides improved opportunities for low-

wealth (often newly formed) households to access affordable, sustainable homeownership.

• The third section features some significant challenges that FHA has faced over the

years and the steps it has taken to meet these challenges.

• Its response to the current housing crisis is described in the fourth section: FHA

maintained access to federally-guaranteed mortgage credit in the face of a severe curtailment of private capital in the market, and has assisted distressed homeowners to keep their homes.

• The appendix reviews key questions and policies that will inform the future role of

FHA, including questions related to the costs and benefits of FHA’s countercyclical role, pending regulatory and institutional reforms (QM,QRM, Basel III) that could affect underwriting standards in the conventional mortgage market.

1989 $263,963 $3,133 1.19%

• 1990

$304,216 ($2,674)

• 0.88%
• 1991

$327,811 ($669)

• 0.20%
• 1992

$325,912 $1,405 0.43% 1.25% 1993 $316,527 $4,554 1.44% 1.25% 1994 $335,073 $6,682 1.99% 1.25% 1995 $345,278 $7,086 2.05% 1.25% 1996 $370,484 $9,397 2.54% 1.25% 1997 $400,850 $11,258 2.81% 1.25% 1998 $419,575 $11,360 2.71% 1.25% 1999 $454,184 $16,637 3.66% 1.25% 2000 $482,732 $16,962 3.51% 2.00%

Source: HUD

Insurance-In- Force (IIF) NA HA Target Capital Ratio

FHA's Recovery After 1990 Reforms Viewed Over Ten Years

Table 3-1.

FY 1989 – 2004

FHA MMI Fund Economic Values and Capital Ratios by Fiscal Year of Actuarial Review

Fiscal Year of A ctuarial Review Economic Value ($M) Capital Ratio

(Econ Value as Percent of IIF)

5 10 15 20 25 30 35 40 45 Exhibit IV-4.

FHA Is Known to Have Ramped Up its Support for Home Purchases, Less Well Known is Its Support for Refinances During Crisis

FHA As Share Of Quarterly Mortgage Originations By Type (Percent) Purchase Refinance Combined

Sources: MBA and HUD.

No Gift 113,220 26.6% 548,034 29.9% Nonprofit/Government 85,435 20.1% 45,773 2.5% Relative/Employer 50,229 11.8% 187,872 10.3% Subtotal First Time Buyer 248,884 58.5% 781,679 42.7% No Gift 39,803 9.4% 174,202 9.5% Nonprofit/Government 17,895 4.2% 9,916 0.5% Relative/Employer 7,416 1.7% 29,754 1.6% Subtotal Other Purchase 65,114 15.3% 213,872 11.7%

Total Endorsements

350,372 100.0% 1,831,997 100.0%

Prepared by HUD, Office of Economic Affairs 8/20/12

FHA Single Family Insurance Program - Changes in Business Composition Just Before and After the Crisis

10.4% FY 2009 468,644 25.6% 38,365 2.1% 329,437 18.0%

Data as of July 2012

Type of FHA Mortgage Downpayment Gift Source FY 2006 Other Home Purchase 60,114 14.1% 14,722 4.0% 36,374 Conventional to FHA Refinance FHA To FHA Refinance (Non-Streamline) Streamline Refinance

Percent of FY Endorsements Total Insured Case Count Percent of FY Endorsements Total Insured Case Count

First Time Buyer