MORTGAGE FINANCING: Changes in the Performance of FHA-Insured Loans
Author:
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Published: 2002
Total Pages: 73
ISBN-13:
DOWNLOAD EBOOK →The Department of Housing and Urban Development (HUD), through its Federal Housing Administration (FHA), provides insurance for private lenders against losses on home mortgages. The insurance program is supported by the Mutual Mortgage Insurance Fund (Fund). To help place the Fund on a financially sound basis, the Congress enacted legislation in November 1990 that required the Secretary of HUD to, among other things, take steps to ensure that the Fund achieve and maintain an economic value of at least 2 percent of the Fund's insurance-in-force.1 In February 2001 we reported that a 2 percent capital ratio appeared sufficient to withstand moderately severe economic downturns that could lead to worse-than- expected loan performance.2 However, we cautioned against concluding that the Fund could withstand the specified economic scenarios regardless of the future activities of FHA or the market. Specifically, we noted that our estimates and those of others are valid only under a certain set of conditions, inclining that recently insured FHA loans respond to economic conditions similarly to the response of those insured in the more distant past. At the end of fiscal year 2001, loans originated in the most recent 4 fiscal years accounted for about 70 percent of FHA's portfolio. Concerned about reported increases in FHAs default and foreclosure rates, you asked that we assess the performance of loans made in recent years and the implications for the Fund of any worsening loan performance.
