Housing Agency Reports Record Financial Cushion as it Braces for Market Downturn

Published by FOX Business | November 15, 2022

FHA’s capital reserves rise to $141.7 billion, up $42 billion from 2021, giving officials room to trim mortgage costs

A federal housing agency on Tuesday said its financial reserves have reached record levels and that it was well positioned to weather a mortgage-market downturn.

The audit, released by the Federal Housing Administration on Tuesday, likely gives officials room to trim mortgage costs over the coming months as part of a push by the administration to address housing affordability.

Low interest rates in 2020 and 2021 and a shortage of new construction pushed home prices to record highs. While prices are expected to continue to ease from their springtime highs over the coming months, they remain elevated and interest rates have more than doubled.

“FHA right now is in excellent shape financially. We feel well prepared to navigate whatever lies ahead.”

–Julia Gordon, FHA Agency Commissioner

The FHA, which caters to first-time home buyers and borrowers with lower credit scores, said its insurance fund’s net worth at the end of September was $141.7 billion, up roughly $42 billion from a year earlier. Its capital reserve ratio, which by law is required to stay above 2%, now stands well above that figure at 11%. The ratio measures how much in reserves, as a proportion of its loan guarantees, the FHA would have on hand after covering expected losses.

The FHA doesn’t issue mortgages but insures lenders against losses. Borrowers can pay for insurance on mortgages with down payments of as little as 3.5%.

It is unclear how much the FHA would cut premiums charged for the loans they insure, but a reduction is a priority of industry groups and consumer advocates. Industry officials are asking for cuts that would save new borrowers $50 to $70 a month, The Wall Street Journal reported in July.

Ms. Gordon said the FHA would consider a reduction in pricing once a federal budget is set for the full fiscal year, which began on Oct. 1. A stopgap spending measure funds the government until mid-December.

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