The financial health of the Home Equity Conversion Mortgage (HECM) portfolio improved dramatically over the past year, ending Fiscal Year 2019 with a negative stand-alone capital ratio of -9.22 percent compared to -18.83 percent in FY 2018, according to the 2019 Annual Report to Congress that the Federal Housing Administration released earlier today.
Put another way, the economic net worth of the portfolio improved by $7.7 billion.
“Though still negative, HECM MMI Capital (formerly referred to as economic net worth) improved by $7.71 billion, moving from negative $13.63 billion at the end of FY 2018 to negative $5.92 billion at the end of this past fiscal year,” FHA Commissioner Brian Montgomery remarked in the annual report. “This clearly shows the progress we have made toward stabilizing the HECM portfolio’s financial drain on the MMI Fund.”
Factoring in FHA’s forward mortgage portfolio, the MMI Fund Capital Ratio was 4.84 percent, the highest level since 2007 when it reached seven percent.
FHA Commissioner Montgomery attributed the improved economic strength of the MMI Fund and HECM portfolio to the health of the economy and housing market, and HECM policy changes made in 2018 and 2019. Other actuarial report highlights:
- Over the past decade, HECM for Purchase has grown from 0.47 percent of all transactions in FY 2009 to 7.40 percent in FY 2019;
- HECM-to-HECM refinances decreased to 7.44 percent of all transactions in FY 2019, compared to 17.11 percent in FY 2017; and
- The average principal limit on a HECM in FY 2019 was 51.48 percent of the maximum claim amount, down from 55.26 percent in FY 2018.