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Mutual Mortgage and Cooperative Management Housing Insurance Account
MUTUAL MORTGAGE AND COOPERATIVE MANAGEMENT HOUSING INSURANCE ACCOUNT
PROGRAM HIGHLIGHTS
a/ Non-overhead administrative costs were formerly charged against the Liquidating and Financing Accounts.
b/ FHA negative subsidy has been reclassified as mandatory starting in fiscal year 2000 by agreement of OMB and CBO, and thus an offset against the discretionary administrative costs will not be reflected. OMB reports that discretionary caps are being increased to reflect this change.
c/ 1997 Reestimate funds were transferred from Liquidating via Receipt to Program Account in 1997. The year end occurred before the funds could be transferred to the Financing Account, so the transaction will be completed in 1999.
d/ Legislative savings are reflected in claims, volume estimates and other figures for 1999 current estimates.
SUMMARY OF BUDGET ESTIMATES
An estimated $96 billion of insurance will be written in 2000, covering 925,000 units. These volumes include $2.3 billion and 16,000 new units resulting from increasing the FHA single family loan limit to a ceiling of 87 percent and a floor of 48 percent of the conforming loan limit. The estimates also include a 2 percent increase in FHA mortgages to purchase new homes.
Commitments are 22 percent above the 1999 Budget, and insurance written 54 percent above. A refinancing boom, high commitments at the end of fiscal year 1997, a good year for real estate generally, and a higher level of commitments proceeding to endorsement have driven this increase. The dollar values of commitments are a record level, and the number of commitments are the second highest in the history of FHA.
Budget estimates for total claims are based on the claim rates developed in the Price-Waterhouse Actuarial Review and the most recent estimate of future years' insurance-in-force. Because the Review is finalized in the spring and the Budget must be finished in January, the rates normally used for budget purposes are those in the Review of the year before the actual year in the Budget; thus, for the 2000 Budget, the final claim rates for the 1997 Actuarial Review are being used. Each Review contains claim and prepayment rates for prior and future cohorts of business.
In 1998, the loss mitigation tools under assignment reform are starting to be used by lenders. Lenders have had time to train their staff and housing counselors have become more familiar with these tools, in large part through HUD sponsored programs. The trend of increased use of loss mitigation tools is expected to continue through fiscal year 2000 and level off at about 15 percent o f total claims.
Although HUD has not accepted new applications for assignment since April of 1996, the remaining applications are still being processed. The sixth single family note sale, formerly scheduled for September 1998, was postponed, so the inventory of assigned notes is higher than projected in the 1999 Budget.
Current estimates of commitments for 1999 have decreased from the 1999 Budget Estimates due to a reduction in the number of refinancings estimated in 1999. The Current Estimate of insurance written in fiscal year 1999 includes the effect of the enacted increase to the FHA loan limit, high commitment activity at the end of the 1998 cohort where loans endorse in 1999, and an estimated 2 percent increase in purchase loans.
The 1999 claim figures in the 2000 Budget reflect final claim rates from the materials being prepared for the 1997 MMI Actuarial Review. The final rates are considered more accurate than the preliminary rates used for the 1999 budget.
EXPLANATION OF INCREASES AND DECREASES
The fiscal year 2000 Budget shows the negative subsidy continuing to be disbursed to the Liquidating Account for 1998 through 2001, until arrangements can be made so that the reserves in the Receipt Account will earn interest, as they currently do in the Liquidating Account. It is expected that such arrangements will be in place before fiscal year 2002, when the negative subsidy will be shown as going to the Receipt Account.
PROGRAM DESCRIPTION AND ACTIVITY
The Section 203(b) program, enacted in the National Housing Act of 1934, provides mortgage insurance for one- to four-family residences. This program has contributed to expanding the opportunities for homeownership in the United States and will continue to meet the needs of first-time homebuyers, working families, and minority families, as well as underserved communities, especially center city and rural areas. Under the 203(b) program, any person able to meet the cash investment, mortgage payments and credit requirements may obtain an FHA-insured loan from a private lending institution to purchase a home. Since its inception through September 30, 1998, the MMI Fund has insured approximately $988 billion in mortgages for about 22.5 million families.
The Cooperative Management Housing Insurance Fund contains the Cooperative Housing Insurance program (Section 213) which provides mortgage insurance for cooperative housing projects of more than five units which are occupied by members of a cooperative housing corporation. The insurance program can be used for new construction, rehabilitation, acquisition, improvement or repair of a project and resale of individual memberships in the cooperative. Enacted in 1950, this program has been inactive in recent years.
No legislative changes are proposed for MMI for fiscal year 2000.
The estimated reduction to claims resulting from assignment reform has been slower than anticipated, possibly due to the time required for the industry to adapt to new regulations and retrain staff. Legislation enacted as part of the 1999 Appropriations Act, requiring payment to FHA of triple any claim amount paid by FHA where loss mitigation was not applied appropriately, is expected to encourage the use of loss mitigation. It has taken considerable time for the behavior of lenders to adjust to new expectations for the appropriate ways of dealing with defaults, now that the assignment program is no longer an option. Loss mitigation claims comprised about 7 percent of all MMI claims for 1998, up from less than 1 percent in 1997. With FHA's performance monitoring and financial incentives to speed lender acceptance of loss mitigation tools, a noticeable volume of loss mitigation tools has shown in 1998, and this trend is expected to continue through fiscal year 2000 when the trend is expected to level off.
Because of increasing equity, FHA has been able to undertake actions to increase the availability of mortgages to underserved and unserved populations. The reduction in the up-front fees for first-time home buyers who receive homeownership counseling was doubled to 50 basis points. To further stimulate activity and reduce disparities between suburban and central city homeownership rates, an additional decrease in up-front fees of 25 basis points has been proposed for first-time homebuyers who get counseling and purchase in central cities, making their up-front premium 1.5 percent instead of 2.25 percent, but this further change can only be implemented through pending rulemaking. FHA is examining other ways to increase homeownership, which would make FHA loans more available to a wide spectrum of possible homebuyers, while preserving the viability of the MMI Fund.
New legislation enacted in the 1999 Budget allows HUD additional alternatives to settle claims, including accepting notes in lieu of properties, where it is advantageous to the Fund. Although the legislation was enacted in 1999, and hence scored for Budget purposes then, it is planned for initial implementation in fiscal year 2002, with a phase-in period through 2004. The interim between 1999 and 2002 allow HUD and the mortgage lenders and servicers time to work out conditions, restrictions, and the like; permits HUD to issue regulations; and allows lenders to complete systems modifications and training required by the changes.
Also enacted as part of the 1999 Appropriations Act was legislation regarding sales in revitalization areas, which allows the Secretary to determine such areas, and classes of purchasers, at three possible levels of discount, in order to contribute to stabilizing such regions. This budget estimates that 10 percent of claims will continue to be properties in order to provide for this and other public purposes.
Cross program goals for HUD, also part of the homeownership objective, to which the MMI fund is expected to contribute materially are as follows:
The MMI Fund helps communities and States establish a full continuum of housing and services designed to assist homeless individuals and families achieve permanent housing and self-sufficiency to the extent possible, by setting aside a portion of properties being sold for purchase by non-profits at a 30 percent discount, and offering to finance the purchase under the direct loan account. These properties can be used for transitional housing or for resale to low-income families.
FHA is also implementing the management reform goals. These strategic objectives are reorganizing by functions and consolidating and/or privatizing activities where appropriate, modernizing outdated financial management systems, refocusing and retraining staff to carry out our revitalized mission, creating an Enforcement Authority, and replacing the present top-down bureaucracy with a customer-friendly structure.
As part of the Strategic Plan, HUD also is committed to improve customer service and develop partnerships with industry and interest groups. FHA is involved heavily in outreach, including access to information in the WEB. Working Groups set up to work with industry include for MMI the Single Family Mortgage Insurance Underwriting Outreach Group, and the Housing Counseling Working Group. The homeownership centers which have been set up to handle single family loans have provided quicker and more efficient service.
FHA has been a major factor in expanding homeownership since its start in 1934. In 1998, first-time homebuyers were 80.9 percent of FHA purchase transactions (excluding refinancings). FHA also provides the primary home ownership opportunity for central cities' residents. New initiatives are expanding this opportunity, including reduced premiums for first-time homebuyers with counseling, and reforms to single family property dispositions. The offer of premium reductions of 50 basis points to those who have received home ownership counseling and an additional 25 basis point reduction for those with counseling who purchase in central cities is expected to increase homeownership among first-time buyers, especially minorities, and homebuyers in underserved areas. FHA is committed to increasing the homeownership rate to 67.5 percent by the year 2000. Within the limitations of financial market and economic conditions, and with the cooperation of all partners, FHA will do everything it can to reach the goal. |
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Content Archived: January 20, 2009 | |
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