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Overview of GAO's Past Work on FHA's Single-Family Mortgage Insurance Programs

GAO-13-400R Published: Mar 07, 2013. Publicly Released: Mar 07, 2013.
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What GAO Found

Among other things, GAO's past work discusses FHA's financial condition and steps the agency has taken to improve its financial condition. As housing prices began to decline at the end of 2006 and conventional mortgage lenders tightened their underwriting standards, more homebuyers began taking advantage of FHA-insured loans, which tend to have less strict underwriting standards and require lower down payments, as compared with conventional loans. As a result, FHA's share of the market increased. In 2006, FHA insured approximately 4.5 percent of purchase mortgages. At its peak in 2009, it insured 32.6 percent of purchase mortgages. In 2011, its share of purchase mortgages fell to 26.5 percent.

As FHA's market share grew, the economic value of FHA's insurance fund declined dramatically. Specifically, it declined from about $21 billion at the end of 2007 to less than $4 billion by the end of 2009. At the end of 2012, the fund's economic value was negative. As a consequence, the insurance fund's capital ratio fell to negative 1.44 percent in 2012, far below the statutory minimum of 2.0 percent. As the capital ratio declined, the insurance fund's condition also worsened from the federal budgetary perspective. This has heightened the possibility that FHA may require additional funds from the Department of the Treasury (Treasury) to have sufficient reserves for all future insurance claims on its existing portfolio.

In recent years, FHA has taken several actions intended to shore up its financial position and minimize defaults, such as increasing down-payment requirements for certain loans in 2010 and raising premiums on insured mortgages multiple times. (FHA proposed its most recent premium increase in January 2013.) However, such changes, which could make it more difficult to obtain mortgage insurance, can affect the types of borrowers FHA serves and the role it plays in the mortgage market, which traditionally has been to support underserved populations. As GAO has previously reported and highlighted in GAO's 2013 high-risk report, further actions could be taken to help restore FHA's financial soundness and clarify its future role in the market, such as defining the economic conditions the insurance fund should be expected to withstand without funding from the Treasury. GAO has also recommended that FHA improve it risk-assessment efforts and human capital management. The agency has taken multiple actions to address these recommendations, but some are yet to be completed.

Why GAO Did This Study

The Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) has helped millions of families purchase homes through its single-family mortgage insurance programs, which insure private lenders against losses on mortgages that finance purchases of properties or refinance existing FHA mortgages. In recent years, FHA has experienced a dramatic increase in its market role, partly because other mortgage market segments contracted during the recent financial crisis. At the same time, it has faced fiscal challenges. Since 2009, FHA has not met its statutory capital reserve requirements--essentially, a floor below which reserves should not fall. Additionally, although FHA's single-family insurance programs historically produced budgetary receipts for the federal government, a weakening in the performance of FHA-insured loans could increase the possibility that FHA will require funds to help cover its costs on insurance issued to date.

The increased reliance on FHA mortgage insurance highlights the need for FHA to better ensure that it has the proper controls in place to minimize financial risks while meeting the housing needs of borrowers. GAO previously had identified "modernizing the U.S. financial regulatory system" as a high-risk area and included a discussion of concerns about the resolution of Fannie Mae and Freddie Mac. Because of continuing uncertainty over the resolution of Fannie Mae and Freddie Mac, the potential impact of their resolution on FHA, and concerns about FHA's financial condition, in February 2013 GAO included FHA in this high-risk area, now called "modernizing the U.S. financial regulatory system and the federal role in housing finance." To ensure that Congress has a complete picture of FHA and the role it plays in the mortgage market, Congress asked GAO to summarize GAO's prior work on this agency.

This report summarizes GAO's prior work in the following areas: (1) FHA's market share, (2) FHA's financial condition, (3) FHA's loan requirements (such as down payments), (4) FHA's oversight of lenders and appraisers, (5) FHA's management of delinquent loans and foreclosed properties, (6) FHA's risk-assessment efforts, (7) challenges related to FHA's human capital and information systems, and (8) FHA's reverse mortgages.

For more information, contact Mathew J. Scire at (202) 512-8678 or

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Home mortgagesMortgage insuranceMortgage marketMortgage programsDown paymentsMortgage foreclosuresReverse mortgagesUnderwriting standardsHomeownershipMarket share