The reverse mortgage portion of the Federal Housing Administration’s (FHA)’s Mutual Mortgage Insurance Fund (MMIF) has reached a positive capital ratio for the third time since 2015 on the overall government-backed portfolio.

This is according to an annual actuarial review of the fund’s finances and the FHA’s Annual Report to Congress, both released Wednesday morning. The book’s value sits at approximately $11 billion compared with the $15.1 billion figure recorded in 2022.

The decline was largely attributed to weaker home price appreciation in 2023 that was telegraphed in last year’s report.

Still, the health of the Home Equity Conversion Mortgage (HECM) book of business remains strong from FHA’s perspective, as it has recovered from issues that previously put the portfolio on shaky financial footing.

HECM capital reserve: down slightly, still positive

The capital ratio for the HECM portfolio comprises roughly 5% of the total Mmi Fund, and fell to 16.72% in 2023, down from 22.77% in 2022.

“As expected, the financial performance of the HECM portfolio has declined somewhat during this fiscal year, mostly as the result of lower house price appreciation forecasts,” according to FHA’s Annual Report. “However, the HECM stand-alone capital ratio remains positive for the third year in a row.”

The HECM portfolio is “significantly more sensitive” to even small changes in house price forecasts, but the portfolio’s small size when compared to the total MMI Fund helps limit the impacts these fluctuations might otherwise cause.

Fiscal year 2023 volume for the HECM program stands at 32,963, totaling $16 billion in maximum claim amount (MCA), according to the Annual Report.

While the mortgage market broadly experienced a steep drop in originations, data as recent as the end of September 2023 indicates that “FHA’s purchase transaction loan volume remained strong, highlighting FHA’s continued role in providing access to financing for first-time and other homebuyers through all economic cycles,” the report said.

HECM endorsements dropped roughly 50% in 2023 compared to data from the prior year.

The report also cited different HECM policy moves made in 2023, including a streamlining of the HECM claims submission process and new procedures in addressing HECM servicer default, designed to alleviate liquidity pressures on the reverse mortgage industry.

“FHA issued policies designed to support HECM market stability and consumer and market confidence in the HECM program,” the report said. “These changes mitigate market-based risk to MMI Fund while also supporting the borrowers served by the HECM program.”

Average MCA per-HECM loan also declined slightly in 2023 to $490,396 from last year’s record high of $498,210.

“Rising average Maximum Claim Amounts coincide with higher appraised values on homes occupied by HECM borrowers,” the report said.

HUD and FHA response

In an exclusive statement to RMD, HUD Secretary Marcia Fudge said that the report illustrates good stewardship of the MMI Fund under current leadership.

“Today’s report shows that thoughtful and responsive policies can expand homeownership and address long-standing inequities while maintaining a well-performing Mutual Mortgage Insurance Fund,” Fudge said. “In 2023, we helped thousands of Americans become homebuyers, promoting equity and fairness while bolstering our entire economy.”

In regards to HECM specifically, FHA Commissioner Julia Gordon said that the program’s book of business performance is in line with expectations set in last year’s report.

“The fact is that the HECM book is uniquely sensitive to home price projections, not just the actual numbers that we’ve had in the last few years,” Gordon said in an exclusive interview with RMD.

“So remember, when we do this exercise, we’re looking across the whole life of the loan, so projections have clearly slowed from previous years.”

Gordon explained that as important as the numbers featured in the report are, they are only one piece of the broader puzzle.

“Looking at one number like this while we put out this report — because of course we are obligated by Congress to disclose what the ratio is and to provide this report — one number doesn’t tell you a whole story,” she said.

“Sure, it is a directional number. It is good that it is still a strong number and still continues to support the MMI fund as a whole. But the important story is in the words we’ve written in the Annual Report.”

Editor’s note: This is a developing story and will be updated as new information becomes available.

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