Reserve Fund Is Low — Will the Treasury Need To Help?
Negative capital reserve does NOT indicate operating deficit
The U.S. Department of Housing issued its Annual Report to Congress on the financial status of the Federal Housing Administration’s Mutual Mortgage Insurance (MMI) Fund for the fiscal year 2012 last week. Most notably, the report reveals that the fund currently has a negative economic value of $16.3 billion.
It is important to note that the fund’s negative value does not mean that the FHA is unable to pay insurance claims or is running a current operating budget.
FHA unlikely to petition Treasury support
Although the FHA could petition for a Treasury draw, the decision as to whether that’s necessary doesn’t rest on the projections outlined in the report, but on the President’s budget proposal, which will be released in February — even then, the final determination won’t be made until September of next year. The report’s estimate of this year’s deficit also does not include $11 billion of expected capital accumulation from the FHA’s current “book of business.”
The FHA, which was created in 1934 to revive the country’s housing market after the Great Depression, has never had to call upon the Treasury for financial support.
Capital reserve fund down from 2011
The Congress mandates that the FHA’s capital reserve fund be no less than 2 percent of the FHA’s “insurance-in-force” — with $1.13 trillion of insurance-in-force for FY 2012, the current capital reserve fund ratio is about -1.44 percent, down from 0.24 percent in 2011 (when the fund had an economic value of $2.6 billion).
Fund predicted to be in the black within 2 years or less
The FHA predicts that — without any policy changes or other operating changes that might impact the FHA’s recovery — the fund will be positive in 2014 and reach the mandated ratio of 2.2 percent by 2017.
Read the FHA’s full report here.