FHA Finally Hits Capital Mandate
For the first time since 2008, the Federal Housing Administration, also known as FHA, has reached its congressionally mandated threshold of 2% well ahead of schedule.
What does this mean? It means the FHA Fund finally has 2% of its net worth. By law, they are required to maintain 2% net worth in order to protect consumers, taxpayers, and itself from the volatility of the market and economy. The FHA was not expected to reach this threshold until 2016. However, the sharp increase is being attributed to the FHA’s Home Equity Conversion Mortgage program (HECM). While many thought the lower premiums introduced in the beginning of 2015 would help, these appear to have little influence on the FHA reaching 2.07% capital ratio.
While it is a good thing that the FHA now has more than 2% capital, many are warning that we shouldn’t be celebrating just yet. Not only is it the law to have and maintain this amount of net worth, but also some experts are anticipating that the percentage will again dip below 2% in 2016.
So while the FHA is finally in a place to protect itself from the market, it has yet to be seen if they are able to maintain this and what changes they will make to premium cuts or mortgage programs.