In advance of an expected mortgage-market downturn, the Federal Housing Administration has reached record levels of financial reserves.
Key Details
- The Federal House Administration’s (FHA) capital reserves have reached $141.7 billion—a $42-billion increase from last year.
- The increased financial cushion could potentially give officials wiggle room to reduce mortgage costs in the near future.
- The administration is pushing to increase housing affordability.
- Housing prices are lower than in spring of this year but remain higher than previous years.
- Interest rates have reached new highs while housing prices gradually decrease.
- “FHA right now is in excellent shape financially,” says FHA commissioner Julia Gordon. “We feel well prepared to navigate whatever lies ahead.”
Why it’s news
Not only is the FHA’s fund $42 billion higher than last year, its capital reserve ratio is at 11%. By law, that figure must be at at least 2%—meaning the FHA is sitting in a fairly solid financial position.
The FHA itself does not issue mortgage loans but insures lenders who do.
There is a possibility that the FHA could reduce premium charges on insured loans, but exactly how much that could be reduced is still unclear. Officials have been asking for cuts that could reduce borrower payments by as much as $50 to $70 a month.
Gordon has previously said that the FHA would consider reductions after the federal budget is set.
Such a move would draw some criticism. Opponents say that reductions on mortgage costs could result in home prices rising even further out of buyers’ reach.
“At a time of record-high housing costs, mortgage insurance premiums cuts would further spur demand and increase home prices while putting taxpayers on the hook for bad credit risk,” says Senate Banking committee member Senator Pat Toomey.
FHA operates as a self-funded insurance business, collecting premiums from lenders and or borrowers.
