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Mortgage Program FHA's Financial Health Improves

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Thursday, 15 November 2018 10:47 AM

The financial health of a federal program that backstops mortgages made to lower-income borrowers improved in 2018, with the amount of money that the U.S. government sets aside to cover soured loans rising.

The Federal Housing Administration’s capital reserves increased by $8.1 billion to $34.8 billion for the fiscal year ended in September, according to a U.S. Department of Housing and Urban Development report.

The reserve fund is required by law to be at least 2 percent of the mortgages that the FHA guarantees, and this year that ratio rose to 2.76 percent.

Last year, the FHA barely met its minimums and the amount of money in the reserve fund declined.

“The thing that caused the uptick was extremely good financial management,' Housing Secretary Ben Carson said in a Wednesday interview. He added that reserves would have been even higher had there not been a series of natural disasters.

The FHA doesn’t make loans. It sells insurance, paid by borrowers, on mortgages that can have a down payment of as low as 3.5 percent and a credit score of 580. The program is commonly used by first-time home buyers and other borrowers with little wealth. Should borrowers fail to make their payments, the insurance makes lenders whole.

After the 2008 financial crisis, the FHA’s reserve fund ran dry, and the agency received a $1.7 billion bailout, its first in nearly 80 years. The fund has been above 2 percent since 2015.

Some Republicans have called on the Trump administration to rein in the FHA’s footprint through actions such as lowering the size of mortgages it can guarantee. The Obama administration sought to do the opposite, loosening standards so that more buyers were eligible for FHA-backed loans.

“You’re not doing people a favor if you’re putting them in a home they can’t afford,' Carson said in the interview.

Carson added that he is making progress in easing some enforcement policies that drove a lot of big banks out of the FHA market after the 2008 meltdown. HUD has made 'very excellent' headway working with the Department of Justice to relax post-crisis rules so that banks are more comfortable lending again, he said.

“I don’t think it will be long until that problem will be rectified,' Carson said. “We are very interested in bringing the banks back.'

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The financial health of a federal program that backstops mortgages made to lower-income borrowers improved in 2018, with the amount of money that the U.S. government sets aside to cover soured loans rising.
mortgage, program, financial, health, fha
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2018-47-15
Thursday, 15 November 2018 10:47 AM
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