HUD Archives: News Releases

HUD No. 009
Further Information: For Release
In the Washington, DC area: 202/708-0685 Tuesday
Or contact your local HUD office January 16, 2001


WASHINGTON - An independent report issued today by the accounting firm of Deloitte & Touche says the Federal Housing Administration's Mutual Mortgage Insurance Fund is in its strongest financial condition since it was created in 1934, with a record economic value of $17 billion that is projected to grow to $43.5 billion by 2007.

The report is especially impressive in light of FHA premium cuts announced late last year, cuts that reduce the cost of FHA mortgage insurance by approximately one third.

"During the past four years, FHA has helped more than four million families realize the American dream of homeownership," said Housing and Urban Development Secretary Andrew Cuomo. "With FHA stronger than ever, our higher loan limits and reduced premiums position FHA to help millions more families in the years ahead."

Last October, Cuomo announced FHA's Homebuyer Savings Plan which reduces up-front premiums by one-third, eliminates annual premiums after a homeowner has built 22 percent equity in the home, and pays premium refunds to current FHA borrowers. When combined these changes will save a typical consumer about $4,500 over the life of a $100,000 low downpayment loan.

The Deloitte & Touche study says the record $17 billion economic value of the FHA insurance fund is an increase of $2.8 billion over 1999. The study notes that this improvement will withstand potential economic downturns. Indeed, even under the most pessimistic economic scenarios, the study estimates that the value of the fund will more than double over the next six years. The economic value of the fund is defined as the sum of existing capital plus the value of current insurance in force.

The report also states that FHA's capital adequacy ratio is 3.51 - far in excess of the Congressionally mandated goal of 2.0 percent. This measure is also projected to increase steadily over the next six years, rising to 4.97 percent. The capital adequacy ratio is the economic value of the fund divided by the total insurance in force.

In addition, Deloitte & Touche found that FHA has made a remarkable turnaround from just ten years ago. The FHA insurance fund had an economic value of negative $2.7 billion in 1990. FHA suffered years of mismanagement in the 1980s, and by 1990 it had projected losses from claims on mortgage insurance far in excess of projected revenue. Absent radical restructuring, a costly federal bailout seemed inevitable.

FHA Commissioner William C. Apgar added: "This new study shows that FHA reforms are working. Very few programs can say that they help millions of families each year without costing taxpayers a penny. FHA's revenues in 2000 exceeded expenses by a wide margin, enabling the agency to return over $2 billion to the U.S. Treasury."

Last year, growing FHA revenues sparked Congressional debates about how best to utilize these funds.

National Low-Income Housing Coalition President Sheila Crowley said: "HUD is to be commended for the latest report on the healthy state of the FHA insurance program. The National Low-Income Coalition encourages the use of funds produced by one federal housing program to solve other pressing housing problems, such as the lack of affordable rental housing for the lowest income families."

FHA-insured loans largely go to first-time homebuyers and to minority families. The percentage of people getting FHA-insured mortgages who were first-time homebuyers skyrocketed from 64.4 percent in 1992 to 81.6 percent in 2000. The percentage of people getting FHA-insured mortgages who were minorities jumped from 21.7 percent in 1992 to 41.8 percent last year.

"FHA has played a central role in the Clinton Administration's Homeowner Strategy," said Cuomo. "The percentage of households owning their homes - known as the homeownership rate - has risen steadily since President Clinton took office, jumping from 64 percent in 1993, to 66.3 percent in 1998, and setting a new record of 67.7 percent in 2000."

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. Because FHA mortgage insurance protects lenders from losses, since 1934 it has enabled 30 million American families who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages.

FHA now insures about 6.7 million mortgages with a balance of $480 billion. When homeowners fail to make payments on mortgages insured by FHA, the agency first tries to help them stay in their homes through foreclosure avoidance. If this is not successful, the lender forecloses on a home and conveys it to FHA in exchange for FHA payment of the outstanding mortgage balance. FHA then puts the home up for sale.

FHA-insured loans also benefit homebuyers in these ways:

  • FHA downpayments of three percent are lower than the minimum that many lenders require for non-FHA mortgages. Higher downpayments are a major roadblock to homeownership.
  • FHA's requirement for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers.
  • FHA permits homebuyers to use gifts from family members and non-profit groups to make their entire downpayment, while conventional loans generally require homebuyers to come up with a portion of the downpayment from their own funds.
  • FHA permits a borrower to carry more debt than a private mortgage insurer typically allows.


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