Tag Archives: presidential budget

FHA Insurance Fund May Need Bailout

12 Apr
Presidential Budget Projects Insurance Fund May Need Treasury Support
from the News for the Week of 4.11.2013 NRMLA Newsletter

President Obama’s fiscal 2014 budget, as calculated by the Office of Management and Budget, projects an infusion of $943 million may be required for the MMI Fund Capital Reserve account for the new fiscal year beginning October 2, 2013 to cover projected 30-year losses.  Budget details show positive cash flow of about $4.3 billion for the forward mortgage portion of the fund, but $5.2 billion negative cash flow for reverse mortgage loans.

Since at the end of a loan (or “Maturation Event”) the borrower is only responsible for the appraised value of the home or sales price, the insurance fund covers any remaining balances. The Capital Reserve fund is a projection of the amount of money that will be needed to cover these expenses to FHA.

By statute, the MMI must operate net neutral on an annual basis. It is not supposed to depend on what is commonly called an appropriation, but which in the current verbal war zone are being referred to more frequently as “costs to taxpayers.”

This is just a proposed budget that still needs to be negotiated and passed by Congress. Though no federal budget has made its way out of Congress in the past few years, there seems to be more inertia to pass one this year. With recent years’ books of HECM business looking much better due to increases in insurance premiums and the creation of the HECM Saver, and future effects expected from the recent moratorium on the fixed rate HECM Standard, and, more significantly, increased home values, it is possible that over the time the budget is negotiated, the HECM picture will turn rosier.

At the same time, HUD is looking for the legislative authority to make additional alterations in the HECM program, so that it can make its own adjustments via Mortgagee Letter when a projection like this occurs. In its 2014 Budget Report, “Housing and Communities Built to Last,”  the narrative specifically pinpoints such changes as “instituting a required financial assessment and establishing mandatory escrow amounts.”

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