Federal Housing Administration: Risks to the Mutual Mortgage Insurance Fund and the Agency's Operations Page: 2 of 20
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Accountability * Integrity * Reliability
Highlights of GAO-12-277T, a testimony
before the Committee on Financial Services,
House of Representatives
Why GAO Did This Study
The Federal Housing Administration
(FHA) has helped millions purchase
homes by insuring private lenders
against losses from defaults on single-
family mortgages. In recent years, FHA
has experienced a dramatic increase in
its market role due, in part, to the
contraction of other mortgage market
segments. The increased reliance on
FHA mortgage insurance highlights the
need for FHA to ensure that it has the
proper controls in place to minimize
financial risks while meeting the
housing needs of borrowers.
This statement discusses (1) changes
in the financial condition of FHA's fund
used to insure mortgages-the Mutual
Mortgage Insurance Fund (Fund)-and
the budgetary implications of these
changes; (2) how FHA evaluates the
financial condition of the Fund; and (3)
steps FHA has taken to assess and
This statement is drawn from a recent
report on FHA's oversight capacity
(GAO-12-15) as well as a report issued
in September 2010 on the financial
condition of the Fund (GAO-10-827R).
GAO also obtained updated
information on the status of the Fund
from the recently issued actuarial
report on the Fund.
What GAO Recommends
GAO previously made
recommendations on modeling the
Fund's financial condition, risk
assessments, and human capital. FHA
agreed with these recommendations
and told GAO they have efforts
underway to implement them.
View GAO-12-277T. For more information,
contact Mathew J. Scire at (202) 512-8678 or
FEDERAL HOUSING ADMINISTRATION
Risks to the Mutual Mortgage Insurance Fund and
the Agency's Operations
What GAO Found
For the third consecutive year, FHA reported that the Fund's capital ratio (the
ratio of economic value to insurance-in-force) has not met the 2 percent statutory
minimum (see below). FHA cites declines in the Fund's economic value due to
higher-than-expected defaults, claims, and losses. At the same time, the other
component of the ratio, FHA's insurance-in-force, has grown rapidly. The Fund's
condition also worsened from a budgetary perspective, with balances in the
Fund's capital reserve account reaching new lows. If the account were depleted,
FHA would require more funds to help cover costs on insurance issued to date.
FHA enhanced methods for assessing the Fund's financial condition but has not
yet addressed GAO's 2010 recommendation for improving the reliability of its
estimates. It relies on a single economic forecast, which does not fully account
for variability in future house prices and interest rates. An approach that would
simulate hundreds of economic paths for house prices and interest rates would
improve the reliability of its capital ratio estimates.
FHA has taken or plans a number of steps to better assess and manage risk. It
created a risk office in 2010 and hired a consultant to recommend best practices.
FHA plans to charter committees to evaluate risks at enterprise-wide and
programmatic levels. It began a quality control initiative in the Office of Single
Family Housing, in which program and field offices assess and report on risks.
FHA also enhanced lender and appraiser reviews. While FHA's consultant
recommended integrating risk assessments, the quality control and risk office
activities currently remain separate efforts. Also, the Office of Single Family
Housing has not annually updated assessments since 2009 as required. Without
integrated and updated risk assessments that identify emerging risks, FHA lacks
assurance it has identified all its risks. Further, human capital presents
challenges. FHA has not created a systematic workforce plan to identify critical
skills and skill gaps. Such a plan will be needed because high percentages of
staff are eligible to retire soon. Without a workforce planning process that
includes succession planning, FHA's ability to systematically identify workforce
needs is limited.
Estimate of the Fund's Capital Ratio, 2001-2011
Capital ratio (percentage)
2001 2002 2003 2004 2005 2006 2007 2008
Source: GAO analysis of FHA data.
Minimum capital ratio
2009 2010 2011
United States Government Accountability Office
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United States. Government Accountability Office. Federal Housing Administration: Risks to the Mutual Mortgage Insurance Fund and the Agency's Operations, text, December 1, 2011; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc297387/m1/2/: accessed September 22, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.