Mortgage Financing:

FHA Has Achieved Its Home Mortgage Capital Reserve Target

RCED-96-50: Published: Apr 12, 1996. Publicly Released: Apr 22, 1996.

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Pursuant to a congressional request, GAO reviewed the Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund, focusing on: (1) an estimate of the Fund's economic net worth as of the end of fiscal year 1994; (2) the results of the legislatively prescribed capital reserve ratio that expresses economic net worth as a percentage of insurance-in-force; and (3) a comparison between the GAO estimate of the Fund's economic net worth and an estimate prepared by an accounting firm.

GAO found that: (1) in 1994, the Fund's economic net worth continued to improve; (2) as of September 30, 1994, the Fund had $305 billion in outstanding mortgage loans; (3) using moderate house price appreciation rates and unemployment rates, the Fund had an economic net worth of about $6.1 billion and a resulting capital ratio of 2.02 percent; (4) using low house price appreciation rates and high unemployment rates, the Fund had an economic net worth of $3 billion; (5) using high house price appreciation rates and low unemployment rates, the Fund had an economic net worth of $7.4 billion; (6) during fiscal year 1994, the Fund's capital ratio of 2.02 percent of the amortized insurance-in-force exceeded the November 2000 capital ratio goal of 2 percent; (7) the firm estimated that the Fund had an economic net worth of about $6.68 billion and a resulting capital ratio of 1.99 percent at the end of fiscal year 1994, which was about the same as GAO estimate; and (8) the Fund's future economic net worth will depend on a number of economic factors including the appreciation rates in housing prices and whether FHA is restructured.

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