Results of and Challenges Faced by FHA's Single-Family Mortgage Insurance Program

T-RCED-99-133: Published: Mar 25, 1999. Publicly Released: Mar 25, 1999.

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Judy A. England Joseph
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Pursuant to a congressional request, GAO discussed the Federal Housing Administration's (FHA) single-family mortgage insurance program, focusing on: (1) the activities of FHA's home mortgage insurance program, including the extent to which home buyers use FHA insurance, the characteristics of these home buyers--including whether they were first-time home buyers--and how many of them might also qualify for private mortgage insurance; (2) comparing the insurance terms available through FHA's principal single-family mortgage insurance program with private mortgage insurance and guarantees from the Department of Veterans' Affairs (VA); and (3) examining the challenges FHA faces in ensuring the financial health of its Mutual Mortgage Insurance Fund.

GAO noted that: (1) FHA is a major participant in the single-family housing market--overall as well as for some specific market segments, particularly lower-income and other homebuyers who may have less cash for a down payment but are otherwise able to afford the loan; (2) in 1997, FHA insured over 33 percent of the loans for which lenders required mortgage insurance; (3) in 1996, FHA insured a greater percentage of the home loans made to low-income homebuyers than did either the VA or the private market; (4) this also held true for loans to minorities--FHA insured 30 percent of these loans in 1996, with private companies insuring 14 percent and VA insuring 6 percent; (5) two-thirds of the loans FHA insured in 1995 probably would not have qualified for private mortgage insurance on the basis of the loan-to-value and qualifying ratios of the loans FHA insured; (6) the FHA and VA programs allow borrowers to make smaller down payments and have higher total-debt-to-income ratios than do private mortgage insurers; (7) FHA's program differs from both the private mortgage insurers' and VA's programs in that FHA allows borrowers to finance closing costs in the mortgage; (8) FHA insures loans only up to a maximum amount of $208,800, while VA-guaranteed loans generally cannot exceed $203,000; (9) private mortgage insurers will insure larger loans than either FHA or VA; (10) FHA provides nearly full insurance coverage to lenders, while VA and private insurers do not; and (11) while FHA's Mutual Mortgage Insurance Fund is financially healthy and has surpassed the legislative target for reserves, FHA faces challenges in reducing the losses it incurs on foreclosed properties and maintaining its financial self-sufficiency in the face of economic and other factors that could adversely affect future program costs.

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