Reverse Mortgages Drag Down FHA Insurance Fund Performance

The Federal Housing Administration’s reverse mortgage program continues to cause significant drag on the FHA’s mortgage insurance fund, the agency said today. The fund’s overall capital ratio dipped to 2.09 percent in fiscal year 2017 from 2.35 percent the year before. The fund remained above the congressionally mandated 2 percent level for the third year in a row and had an economic net worth of $25.6 billion, down from $27.6 billion in 2016.

However, the capital ratio for FHA’s home equity conversion, or reverse, mortgage program was at negative 19.84 percent and had a net worth of negative $14.5 billion. FHA said it is taking steps to limit the damage from reverse mortgages, including changes to insurance premiums, principal limit factors and servicing requirements. In 2014, FHA received a $1.7 billion infusion from the Treasury Department to deal with losses on reverse mortgages.

Days before President Trump took office, the Obama administration leadership at the Department of Housing and Urban Development announced a cut in FHA mortgage insurance premiums — a decision that was swiftly reversed after Trump’s inauguration. Today’s report said that had premiums been cut as planned, the insurance fund’s capital ratio would have fallen below its statutory minimum to 1.76 percent.