The U.S. Department of Housing and Urban Development (HUD), through its Federal Housing Administration (FHA), provides insurance for private lenders against losses on home mortgages. FHA's largest insurance program is the Mutual Mortgage Insurance Fund (Fund), which currently is self-financed and operates at a profit. FHA submitted a "reestimate" of $7 billion for the credit subsidy and interest for the Fund as of the end of fiscal year 2003, reflecting a reduction in estimated profits. Given this substantial reestimate, Congress asked GAO, among other things, to determine what factors contributed to the $7 billion reestimate and the underlying loan performance variables influencing these factors and to assess how the loan performance variables underlying the reestimate could impact future estimates of new loans.
Recommendations for Executive Action
|Department of Housing and Urban Development||To more reliably estimate program costs, the Secretary of HUD should direct the FHA Commissioner to study and report in the annual actuarial review the impact of variables that have been found in other studies to influence credit risk, such as payment-to-income ratios, credit scores, and the presence of down payment assistance, on the forecasting ability of the loan performance models used in FHA's actuarial reviews of the Fund. FHA also should report in its annual actuarial review the impact of any changes it makes to key variables, such as the burnout variable, on the forecasting ability of the loan performance models.|