Myths and Facts about the FHA Loan Limits
(November 15, 2011) www.realtor.org
MYTH: FHA WILL SOON NEED A FEDERAL BAILOUT
FACT: The FY12 actuarial review shows a slight decline in
capital reserves. However, it is important to note that this is NOT FHA's only
reserve fund. The capital reserves reflect the reserves available after paying
expected claims and expenses.
FHA's current cash reserves total $33.7 billion - a $400
million increase from a year ago. These reserves are fully capitalized to pay
30 years' worth of expected claims and losses. By comparison, the Financial
Accounting Standards Board only requires private financial institutions to hold
reserves for losses over the next 12 months. FHA has 30 times that amount in
their cash reserves, plus another $2.55 billion in the excess capital reserves.
The 2012 Audit states that "On net, the economic value of
the Fund in future years has increased significantly due to the new, higher
forecast of house price growth." It is anticipated that FHA will again reach
the 2% excess reserve requirement by 2014.
MYTH: FHA IS EXPERIENCING HIGH DEFAULTS AND FORECLOSURES
FACT: FHA's seriously delinquent rate for loans originated
in the last two years declined to 1.90%. FHA has said this is the lowest
seriously delinquent rate in the history of the Neighborhood Watch system
(originated in 1999). FHA's total delinquency rate is now at the lowest level
in more than five years. Furthermore, FHA's credit quality has improved
steadily since 2007. Over fifty percent (50%) of FHA loans made in every
quarter since 2009 (2nd quarter) had credit scores above 680. Thirty-five
percent (35%) of FHA borrowers in 2010 and 2011 (first half) had credit scores
over 720.
MYTH: THE ACTUARIAL REVIEW SHOWS FHA IS IN SERIOUS TROUBLE
FACT: The actuarial review is a "snapshot" of the portfolio
at a particular point in time. It estimates how the portfolio will perform in a
run-off scenario over the next 30 years. Accordingly, an actuarial review is
highly dependent on projections about the future economic environment,
particularly house price projections.
According to the review, "Both the economic value and the
IIF (insurance in force) of the Fund are expected to increase each year over
the next seven years." Even the Wall Street Journal (11/15/11) reports that
"the independent audit shows that loans made over the last two years are
performing far better and are expected to be profitable. While rising losses
could prompt new calls for the FHA to take steps to reduce their role in the
markets, housing analysis warn those steps could be counter-productive if they
prevent qualified borrowers from accessing credit."
MYTH : EXTENDING THE CONFORMING LOAN LIMITS WILL PUT FHA AT
GREATER RISK
FACT: The 2011 Actuarial Review actually shows the opposite
to be true. The review states, "FHA experience indicates that more expensive
houses tend to perform better compared with smaller houses in the same
geographical area, all else being equal."
MYTH: FHA IS NOT SERVING ITS MISSION
FACT: In 2010, FHA was used by 56 percent of all first-time
homebuyers, and 60 percent of all African-American and Hispanic homebuyers. In
addition, 85% of borrowers obtaining homes at the higher loan limits had
incomes below $150,000, and nearly 65% had incomes less than $100,000.
MYTH: EXTENDING THE LIMITS WILL SERVE MILLIONAIRES BUYING
MCMANSIONS
FACT: Although some have argued this provision provides
financing only for high-cost markets, more than 100 counties throughout the
Midwest and more than 200 counties in the South experienced declines averaging
more than $64,000. The majority of markets that were impacted by the loan limit
decline are NOT high cost.
FHA Bailout Not Necessary - Additional Facts
Moody's July 2011 forecast predicts a return to positive
home price growth of 1.21% in FY 2012 and peaking at 6.08% in FY 2014 and
between 3 - 4% in FY 2018 and beyond.
According to the Actuarial Report, if the private
secondary market reestablishes its prior role in the market, FHA's market share
will likely revert to its historical norm of 8 - 10 percent.
According to the Actuarial Report, the economic value of
FHA's MMIF will increase in the future, rising by an average of $8.32 billion
per year through FY 2018. The insurance-in-force (IIF) will increase by an
average rate of 6.28% per year through FY 2018. The economic value is expected
to grow at a substantially faster rate than that of the IIF. The economic value
is projected to steadily increase over the next 7 years to reach $59.45 billion
by the end of FY 2018.
According to the Actuarial Report, FHA's current cash
reserves total $33.7 billion - a $400 million increase from a year ago.
According to the Actuarial Report, it is anticipated that
FHA will again reach the 2% excess reserve requirement by 2014 - sooner than
was projected in last year's actuarial report
FHA estimated that the Fund has total capital resources of
more than $28 billion at the end of FY 2011. The MMIF is projected to have
$1.19 billion in economic value that can be used to cover unanticipated future
claim losses on the existing portfolio.
FHA insured 60% of all African-American and Hispanic
homeowners in 2010, according to HMDA reports.
FHA insured 56% of all first-time homebuyers in 2010,
according to NAR.
FHA borrowers in FY 2011 have an average credit score
above 700. This is the first time the average credit score for FHA borrowers
broke the 700 mark.