FHA Single-Family Mortgage Insurance:
Financial Status of the Mutual Mortgage
Insurance Fund (MMI Fund)

Updated February 23, 2021
Congressional Research Service
https://crsreports.congress.gov
R42875




FHA: Financial Status of the Mutual Mortgage Insurance Fund

Summary
The Federal Housing Administration (FHA) insures private lenders against losses on home
mortgages that meet certain eligibility criteria. If the mortgage borrower defaults (that is, does not
repay the mortgage as promised) and the home goes to foreclosure, FHA pays the lender the
remaining principal amount owed. By insuring lenders against the possibility of borrower default,
FHA is intended to expand access to mortgage credit to some households who might not
otherwise be able to obtain affordable mortgages, such as those with smal down payments.
When an FHA-insured mortgage goes to foreclosure, the lender files a claim with FHA for the
remaining amount owed on the mortgage. Claims on FHA-insured home mortgages are paid out
of the Mutual Mortgage Insurance Fund (MMI Fund), which is funded through fees paid by
borrowers (cal ed premiums), rather than through appropriations. However, like al federal credit
programs covered by the Federal Credit Reform Act of 1990, FHA can draw on permanent and
indefinite budget authority with the U.S. Treasury to cover unanticipated increases in the cost of
the loans that it insures, if necessary, without additional congressional action.
Each year, as part of the annual budget process, the expected costs of mortgages insured in past
years are re-estimated to take into account updated information on loan performance and
economic assumptions. If the anticipated costs of insured mortgages have increased, then FHA
must transfer funds from a secondary reserve account into its primary reserve account to cover
the amount of the increase in the anticipated cost of insured loans. If there are not enough funds
in the secondary reserve account, then the MMI Fund is required to take funds from Treasury
using its permanent and indefinite budget authority in order to make the required transfer.
Separately from the budget re-estimates, FHA is required by law to obtain an independent
actuarial review of the MMI Fund each year. This review provides a view of the MMI Fund’s
financial status by estimating the MMI Fund’s economic value—that is, the amount of funds that
the MMI Fund currently has on hand plus the net present value of al of the expected future cash
flows on the mortgages that are currently insured under the MMI Fund. The actuarial review is
used to determine whether the MMI Fund is in compliance with a statutory requirement to
maintain a capital ratio of at least 2%. The capital ratio is the economic value of the MMI Fund
divided by the total dollar amount of mortgages insured under the MMI Fund.
In the years following the housing and mortgage market turmoil that began around 2007,
increased foreclosure rates, as wel as economic factors such as fal ing house prices, contributed
to increases in expected losses on FHA-insured loans. This put pressure on the MMI Fund and
reduced the amount of resources that FHA had available to pay for additional, unexpected future
losses. The capital ratio fel below 2% in FY2009 and remained below 2% for several years
thereafter, turning negative in FY2012 and FY2013. Concerns about FHA’s finances culminated
at the end of FY2013, when FHA announced that it would need $1.7 bil ion from Treasury to
cover an increase in anticipated costs of insured loans. This marked the first time that FHA
needed funds from Treasury to make the required transfer of funds between the primary and
secondary reserve accounts.
More recently, the financial position of the MMI Fund has improved. The capital ratio again
exceeded the 2% threshold in FY2015 and has remained above 2% in the years since. The
FY2020 actuarial review of the MMI Fund estimated the economic value of the MMI Fund to be
positive $79 bil ion and the capital ratio to be 6.10%. This suggests that the MMI Fund would
have about $79 bil ion remaining after realizing al of its expected future cash flows on currently
insured mortgages. The FY2020 results represent an increase from FY2019, when the capital
ratio was estimated to be 4.84% and the economic value was estimated to be $62 bil ion.
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Contents
Introduction ................................................................................................................... 1
The Mutual Mortgage Insurance Fund ................................................................................ 1
Factors Affecting the Stability of the MMI Fund .................................................................. 2
Foreclosures and Associated Loss Severities .................................................................. 3
Number of Mortgage Delinquencies and Foreclosures................................................ 3
Loss Mitigation Efforts ......................................................................................... 3

Loss Severity Rates .............................................................................................. 4
Mortgage Insurance Premiums .................................................................................... 5
Loan Volume ............................................................................................................ 5
Economic Conditions and Projections ........................................................................... 5

The MMI Fund in the Federal Budget ................................................................................ 6
Credit Reform Accounting and Credit Subsidy Rates....................................................... 6
Annual Credit Subsidy Rate Re-estimates...................................................................... 8
MMI Fund Account Balances .................................................................................... 10
Permanent and Indefinite Budget Authority ................................................................. 11
Annual Actuarial Review and Annual Report to Congress on the Financial Status of the
MMI Fund ................................................................................................................ 13
FY2020 Results....................................................................................................... 14
The 2% Capital Ratio Requirement ............................................................................ 16
Brief History of the Capital Ratio Requirement ....................................................... 16
FY2020 Capital Ratio ......................................................................................... 18
Selected Issues ............................................................................................................. 20
Potential Impact of the COVID-19 Pandemic............................................................... 20
Role of FHA-Insured Reverse Mortgages in the Annual Actuarial Review ........................ 21

Figures
Figure 1. Standalone Capital Ratios for Forward Mortgages and HECMs............................... 22

Tables
Table 1. MMI Fund Credit Subsidy Rates and Re-estimates ................................................... 9
Table 2. MMI Fund Account Balances, FY2008-FY2020 .................................................... 11
Table 3. Results of the Annual Actuarial Review of the MMI Fund, FY2006-FY2020 .............. 19

Contacts
Author Information ....................................................................................................... 23

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FHA: Financial Status of the Mutual Mortgage Insurance Fund

Introduction
The Federal Housing Administration (FHA) was established by the National Housing Act of 1934
and became part of the Department of Housing and Urban Development (HUD) in 1965. It
insures private lenders against losses on certain home mortgages.1 If the borrower does not repay
the mortgage and the home goes to foreclosure, FHA pays the lender the remaining amount that
the borrower owes (that is, it pays a claim to the lender). FHA charges borrowers fees, cal ed
premiums, in exchange for the insurance.
FHA insurance is intended to encourage lenders to offer mortgages to some borrowers who
otherwise might be unable to access mortgage credit at affordable interest rates or at al . For
example, FHA requires a smal er down payment than many other types of mortgages, potential y
making it easier for lower-wealth borrowers, first-time homebuyers, or others for whom a large
down payment may present a barrier to homeownership to obtain a mortgage. To qualify for FHA
insurance, both the borrower and the mortgage must meet certain criteria.2 For example, the
principal balance of the mortgage must be under a certain dollar threshold. Lenders that originate
FHA-insured mortgages must be approved by FHA.
This report describes certain measures of the financial health of the FHA insurance fund for home
mortgages, the Mutual Mortgage Insurance Fund. The discussion in this report assumes a certain
degree of familiarity with FHA-insured mortgages. For more information on the basic features of
FHA-insured mortgages and FHA’s role in the mortgage market, see CRS Report RS20530,
FHA-Insured Home Loans: An Overview.
The Mutual Mortgage Insurance Fund
Most single-family mortgages insured by FHA are financed through an insurance fund cal ed the
Mutual Mortgage Insurance Fund (MMI Fund).3 Since FY2009, the MMI Fund has included
FHA-insured reverse mortgages as wel as traditional “forward” home mortgages.4 Much of the
discussion in this report focuses only on traditional forward mortgages, rather than reverse
mortgages. However, certain specified sections discuss both forward and reverse mortgages.
Money flows into the MMI Fund primarily from the mortgage insurance premiums paid by
borrowers and from sales of foreclosed properties, and money flows out of the MMI Fund
primarily from claims paid to lenders when FHA-insured mortgages default. The MMI Fund is

1 T he National Housing Act has been amended a number of times to allow FHA to insure a wider variety of mortgages
than just mortgages on single-family homes, including mortgages on multifamily buildings, hospitals, and other health
care facilities. T his report focuses only on FHA’s single-family program.
2 T he basic features of FHA-insured mortgages are described in CRS Report RS20530, FHA-Insured Home Loans: An
Overview
. For detailed underwriting requirements for FHA-insured mortgages, see HUD Handbook 4000.1, FHA
Single Fam ily Housing Policy Handbook
, available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/
administration/hudclips/handbooks/hsgh.
3 Single-family mortgages are defined as mortgages on properties with one to four dwelling units. For example, a
duplex would be considered a single-family property under this definition. Some small FHA single-family mortgage
programs, such as mortgages for property improvements and certain mortgages on manufactured homes, are insured
under a different FHA insurance fund.
4 Reverse mortgages allow elderly homeowners to access the equity in their homes. T he lender makes payments to the
borrower, and is repaid with the proceeds from the sale of the home when the homeowner dies or chooses to no longer
occupy the property. FHA-insured reverse mortgages are called Home Equity Conversion Mortgages (HECMs). For
more information on HECMs, see CRS Report R44128, HUD’s Reverse Mortgage Insurance Program : Hom e Equity
Conversion Mortgages
.
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FHA: Financial Status of the Mutual Mortgage Insurance Fund

intended to be self-supporting. It is meant to pay for costs related to insured loans (such as
insurance claims paid to lenders) with money it earns on those loans (such as through premiums
paid by borrowers), not through appropriations.5
The MMI Fund is also required to maintain a capital ratio of 2% to help pay for any unexpected
increases in losses on its insured mortgages, beyond the losses that it currently anticipates.
(Capital in this context is defined as the assets that the MMI Fund currently has on hand, plus the
net present value of future cash flows associated with the mortgages that it currently insures. The
capital ratio is the ratio of capital to the total dollar amount of mortgages insured under the MMI
Fund.) As wil be discussed in more detail later in this report, the MMI Fund, like al federal loan
and loan guarantee programs subject to the Federal Credit Reform Act of 1990, has permanent
and indefinite budget authority to receive funds from the Department of the Treasury to cover
increases in the costs of loan guarantees made in prior years.
FHA faces an inherent tension between facilitating the provision of mortgage credit to
underserved borrowers and safeguarding the health of the MMI Fund. In the years following the
housing and mortgage market turmoil that began around 2007, rising mortgage default rates and
fal ing home prices put pressure on the MMI Fund. This resulted in the capital ratio fal ing below
the required 2% threshold in FY2009 and then turning negative for a period of time. The capital
ratio became positive again in FY2014 and regained the 2% threshold in FY2015.
The capital ratio fal ing below 2%, and then turning negative, raised concerns that the MMI Fund
would not have enough money to cover al of its expected future losses on the loans that it was
currently insuring. At the end of FY2013, the MMI Fund received $1.7 bil ion from Treasury
using its permanent and indefinite budget authority to ensure that it was holding enough funds to
cover expected future losses on insured loans. This represented the first time that the MMI Fund
ever had to draw on its permanent and indefinite budget authority with Treasury for this purpose.
The MMI Fund has not needed to draw such funds from Treasury in subsequent years.
Congress has expressed ongoing interest in the MMI Fund’s financial status and its prospects for
needing additional funds to pay for future losses on its insured loans. This report focuses on the
financial position of the MMI Fund. It begins with a brief overview of some of the major factors
that affect the MMI Fund’s financial soundness. The remainder of the report focuses on (1) how
the MMI Fund is accounted for in the federal budget and (2) the results of annual independent
actuarial reviews that are mandated by Congress. The budgetary treatment of FHA-insured
mortgages and the actuarial review are two different processes, but both examine how the loans
insured under the MMI Fund have performed and are expected to perform in the future and the
effect of this loan performance on the financial position of the MMI Fund. The annual actuarial
review is the basis for determining the capital ratio. However, it is the annual budget process that
would determine if the MMI Fund required assistance from Treasury to ensure that it held
sufficient funds to cover increases in anticipated losses on insured loans.
Factors Affecting the Stability of the MMI Fund
This section briefly describes some of the major factors that can affect the MMI Fund’s financial
position. These factors include default and foreclosure rates on FHA-insured loans and the
average loss to FHA when a loan goes to foreclosure, the amount of the premiums charged by
FHA, the volume of loans that FHA insures, and current and future economic conditions.

5 FHA does receive appropriations to pay for staff salaries and administrative contract expenses.
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Foreclosures and Associated Loss Severities
Traditional y, when an FHA-insured mortgage goes to foreclosure, FHA pays the lender the
remaining amount that the borrower owes on the mortgage and takes ownership of the property.6
The payment to the lender is cal ed a claim. The loss to FHA is the claim amount paid plus any
other foreclosure-related expenses (such as the cost of maintaining the foreclosed property),
minus any amount that FHA can recoup by sel ing the foreclosed home. FHA’s total losses
related to defaults and foreclosures can depend on, among other factors, (1) the number of
delinquencies, defaults, and foreclosures on FHA-insured loans; (2) the success of efforts to help
borrowers avoid foreclosure on FHA-insured loans or to minimize the costs to FHA associated
with a foreclosure; and (3) how much FHA can recoup by resel ing foreclosed homes.
Number of Mortgage Delinquencies and Foreclosures
The number of FHA-insured mortgages that become delinquent on mortgage payments impacts
FHA’s financial status because higher numbers of delinquencies are likely to translate into higher
numbers of foreclosures and more claims paid out by FHA. Not al delinquent or defaulted
mortgages wil necessarily result in completed foreclosures, but higher delinquency and default
rates are more likely to lead to higher foreclosure rates. A number of factors can contribute to
delinquency and default rates, including the credit quality of the insured mortgages and economic
conditions, such as unemployment rates. Events that cause major shocks to the economy—such
as the financial crisis of the late 2000s and the COVID-19 pandemic—often lead to higher
mortgage delinquency rates.
At the end of FY2020, the rate of FHA-insured mortgages that were seriously delinquent—
defined as loans that are 90 or more days past due, in the foreclosure process, or in bankruptcy—
was 11.6%, compared to 3.9% a year earlier.7 The increase in serious delinquencies includes
borrowers in COVID-19 pandemic-related forbearance plans, which al ow borrowers to defer
mortgage payments for a specified period of time. (The missed payments are not forgiven and
must be repaid at a later date.) The share of FHA-insured mortgages in the foreclosure process
was low at the end of FY2020, reflecting a foreclosure moratorium that had been in place since
March 2020 in response to the COVID-19 pandemic. Foreclosure rates are likely to increase
when the moratorium ends, though by how much depends on several factors, including how many
borrowers in forbearance are unable to resume their mortgage payments (with or without a
mortgage modification) when forbearance periods end.
Loss Mitigation Efforts
Default and foreclosure rates can be affected by efforts to help borrowers avoid foreclosure, such
as by offering mortgage modifications. Efforts to help borrowers avoid foreclosure and thereby
mitigate the losses that the MMI Fund would experience due to a foreclosure are referred to as
loss mitigation actions. When a borrower with an FHA-insured loan defaults, the servicer of the
loan is required to evaluate whether the borrower is eligible for certain specified loss mitigation

6 In recent years, FHA has increasingly been pursuing alternatives to this traditional method of taking ownership of the
foreclosed property. Such alternatives include selling distressed mortgage n otes prior to foreclosure; sales of properties
to third parties at foreclosure auctions rather than the property being conveyed to HUD; and increasing use of short
sales, which are described in footnote 10.
7 HUD, FHA Single-Family Loan Performance Trends, September 2020, https://www.hud.gov/sites/dfiles/Housing/
images/FHALPT _Sep2020.pdf.
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actions.8 If successful, these options can reduce the losses that FHA would otherwise bear on a
troubled loan and help minimize losses to the MMI Fund. Some loss mitigation options are
intended to result in a borrower keeping his or her home, such as loan forbearance or loan
modifications.9 Other options wil result in the borrower losing his or her home, but avoiding
foreclosure, such as short sales and deeds-in-lieu of foreclosure.10
FHA pays incentive payments and, in some cases, partial insurance claim payments to lenders in
connection with loss mitigation actions. These costs are likely to be less to FHA than the cost of
paying a claim after a foreclosure. However, if the borrower defaults on the mortgage again in the
future and the loan then goes to foreclosure, FHA could ultimately pay the full claim amount.
Therefore, the extent to which loss mitigation actions minimize losses to FHA wil depend on
whether borrowers who receive any type of loan workout remain current on their mortgages or
default again in the future.
Loss Severity Rates
If a mortgage must ultimately go to foreclosure, FHA may be able to recoup some of the claim
amount that it pays to the lender by sel ing the property. In general, the amount that it recoups
wil usual y be less than the claim amount. FHA also incurs costs related to managing and
marketing foreclosed properties before they are ultimately sold. The amount of money that FHA
loses on a given claim as a share of the outstanding loan balance, after accounting for any
amounts it recoups from sel ing the property, is referred to as a loss severity rate.11 A number of
factors can affect loss severity rates, including the property disposition method used, home price
trends, and the characteristics of the properties in question.
In recent years, FHA has increasingly used a variety of alternative property disposition methods
that do not involve FHA taking ownership of the foreclosed property. These alternative methods
can include short sales, bulk sales of severely delinquent loans prior to foreclosures being
completed, and sel ing foreclosed properties directly to third parties at a foreclosure auction rather

8 FHA’s loss mitigation policies are described in Section III.A.2 of HUD Handbook 4000.1, FHA Single-Family
Housing Policy Handbook
, available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/
hsgh.
9 Specific loss mitigation options include forbearance agreements, partial claims, and the FHA-Home Affordable
Modification Program (FHA-HAMP). Forbearance agreements allow a borrower to make lower mortgage payments for
a specified period of time, and to repay the difference between the lower mortgage payment and the actual amount
owed at a later date. Partial claims allow a borrower to become current again on a delinquent mortgage through an
advance of funds from the lender on the borrower’s behalf to reinstate the mortgage. FHA pays the lender for this
advance of funds—called a partial claim, because the amount paid by FHA is only part of what the full claim amount
would be if the loan went through foreclosure—and the borrower repays FHA in the future. FHA-HAMP essentially
combines a loan modification and a partial claim to modify a borrower’s loan to achieve an affordable p ayment. T he
option was created to parallel the broader Home Affordable Modification Program (HAMP), a temporary foreclosure
prevention program that was created in 2009 and ended in 2016, but it differs in some important ways from HAMP.
10 Short sales allow a borrower to sell the home for less than the full amount owed on the mortgage, and the lender
accepts the proceeds of the sale as payment in full. A deed-in-lieu of foreclosure allows the borrower to surrender the
deed to the property as payment in full on the mortgage. For more information on requirements governing FHA short
sales (referred to as pre-foreclosure sales) and deeds-in-lieu of foreclosure, see Section III.A.2.l of HUD Handbook
4000.1, FHA Single Fam ily Housing Policy Handbook.
11 FHA usually provides information on loss severity rates in its Quarterly Reports to Congress on FHA Single-Family
Mutual Mortgage Insurance Fund Program s
, available at https://www.hud.gov/program_offices/housing/rmra/oe/rpts/
rtc/fhartcqtrly.
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than conveying the properties to HUD. Different property disposition methods might result in
different average loss severity rates.12
Mortgage Insurance Premiums
FHA charges fees, or premiums, to borrowers who obtain FHA-insured mortgages. These
premiums are intended to cover the costs of any claims that are paid out of the MMI Fund.
Borrowers pay both an up-front premium and an annual premium. These fees represent the main
source of revenue flowing into the MMI Fund.
The amount of premium revenue that comes into the MMI Fund depends on a number of factors,
including the amount of the premiums charged, the number and dollar amount of outstanding
mortgages on which borrowers are paying premiums, and how many of these outstanding
mortgages are ultimately prepaid—through refinancing the mortgage, paying off the loan, or
going to foreclosure—resulting in the borrower no longer paying premiums. Raising premiums
can bring more money into the insurance fund and help to ensure that FHA is pricing its insurance
high enough to adequately cover its risks. However, if premiums are raised too high, fewer
borrowers might choose to take out FHA-insured mortgages, potential y affecting the overal
amount of premium revenue that FHA earns. Furthermore, raising premiums too high could
reduce the overal quality of the mortgages that FHA insures by potential y making FHA-insured
mortgages a less attractive option for al but the borrowers who present the largest credit risk.
Higher premiums also increase the costs of FHA-insured mortgages for homebuyers, potential y
making FHA-insured mortgages less affordable or pricing some potential homebuyers out of the
market. Therefore, setting the appropriate levels for the mortgage insurance premiums involves
balancing the objectives of maintaining affordability of FHA-insured mortgages and managing
risk to the insurance fund.
FHA raised the annual premiums that it charges multiple times in the years following the housing
market turmoil associated with the financial crisis of the late 2000s before announcing a decrease
in the annual premium in January 2015. The current premiums have not changed since that date.13
Loan Volume
The number and dollar volume of loans that FHA insures plays a role in its economic stability. On
the one hand, more loans insured by FHA could lead to more premium revenue coming into the
MMI Fund as more borrowers pay premiums on their FHA-insured loans. On the other hand,
more mortgages insured by FHA also increases FHA’s liability for loan defaults. Ultimately, the
quality of the loans insured and their future performance influence the overal impact of loan
volume on the financial stability of the MMI Fund.
Economic Conditions and Projections
Economic and housing market conditions impact FHA’s financial position in several ways. First
of al , economic conditions can contribute to default and foreclosure rates. If more people become
unemployed or underemployed, or if home prices fal such that people cannot sel their homes if
they can no longer afford their mortgages, then more people may face default or foreclosure.

12 Information on the share of alternative dispositions as a share of all property dispositions, and on associated loss
severity rates, is also generally included in FHA’s Quarterly Reports to Congress on FHA Single-Family Mutual
Mortgage Insurance Fund Program s
.
13 For more information on FHA’s mortgage insurance premiums, see CRS Report RS20530, FHA-Insured Home
Loans: An Overview
.
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Fal ing house prices also limit the amount that FHA can recoup when it sel s a foreclosed
property.
Projections of future economic conditions are also important factors in evaluating the health of
the MMI Fund. The expected future paths of house prices and interest rates, in particular, play
large roles in estimating how FHA-insured mortgages wil perform in the future and, ultimately,
how much money is expected to flow into and out of the MMI Fund. The future path of house
prices is important because, as noted, house prices play a role in default and foreclosure rates and
in how much FHA can recoup on foreclosures. Interest rates are important because they can affect
home purchase activity as wel as the decision by homeowners to refinance their mortgages,
which affects how much premium revenue FHA expects to earn as wel as affecting FHA’s
potential liability for future claims. If borrowers with FHA-insured mortgages refinance into new
mortgages that are not insured by FHA, those borrowers wil stop paying premiums to FHA,
reducing the amount of revenue that FHA takes in. However, FHA’s overal liabilities wil also be
reduced since it wil no longer be responsible for repaying the lender if the borrower defaults on
the mortgage.
If assumptions about future economic conditions and their impact on loan performance are not
accurate, then current estimates of the MMI Fund’s financial position may also not be accurate.
The MMI Fund in the Federal Budget
This section describes how FHA-insured mortgages are accounted for in the federal budget in the
year that the loans are insured and in the years thereafter. It includes a discussion of the
circumstances under which the MMI Fund would need an appropriation in order to cover the cost
of insuring new single-family loans in an upcoming fiscal year (a situation which has never
occurred). It also discusses the circumstances under which the MMI Fund can draw on permanent
and indefinite budget authority with Treasury to reserve for higher-than-expected costs of loans
insured in past years (an event that occurred at the end of FY2013).
Credit Reform Accounting and Credit Subsidy Rates
The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal
loan guarantees, including FHA-insured loans, are recorded in the federal budget.14 The FCRA
requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be
recorded in the federal budget in the year that the loans are insured. The lifetime cost per dollar of
loans guaranteed is reflected in the budget as a credit subsidy rate, and the credit subsidy rate
multiplied by the total dollar volume of loans insured that year results in the total amount of
credit subsidy for those loans.15
When a loan guarantee program is estimated to have a positive credit subsidy rate, it requires an
appropriation to cover the cost of new loan guarantees before it can insure any new loans in that

14 For more information on how the costs of federal credit programs are treated in the federal budget, see archived CRS
Report R42632, Budgetary Treatm ent of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and
Issues for Congress
.
15 In technical terms, a credit subsidy rate is calculated as the net present value of expected future cash flows from
mortgages insured in a given year, divided by the dollar volume of loans expected to be in sured in that year. T he “ net
present value of expected future cash flows” is the present value of expected cash flows out of the insurance fund (such
as claims expected to be paid in the future on defaulted mortgages) net of expected cash flows into the in surance fund
(such as premiums expected to be paid by borrowers).
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fiscal year. When a loan guarantee program is estimated to have a negative credit subsidy rate, it
means that the present value of the lifetime cash flows associated with the guaranteed loans is
expected to result in more money coming into the account than flowing out if it. Rather than
requiring an appropriation, a negative credit subsidy rate generates negative subsidy, resulting in
offsetting receipts. In the case of the MMI Fund, these offsetting receipts can offset other costs of
the HUD budget.16
In accordance with the FCRA, each year as part of the President’s budget request, FHA and the
Office of Management and Budget (OMB) estimate the credit subsidy rate for the loans expected
to be insured in the upcoming fiscal year.17 These estimates are based on factors such as
projections of how much mortgage insurance premium revenue the loans insured in the upcoming
year are expected to bring in, projections of how much FHA wil have to pay in future insurance
claims related to those loans, and projections of how much money FHA wil be able to recover by
sel ing foreclosed properties. These projections, in turn, rest on assumptions about the credit
quality of the loans being made and assumptions about future economic conditions (including
house prices and interest rates).
Since credit reform accounting was implemented, FHA’s single-family mortgages have always
been estimated to have negative credit subsidy in the year that they are insured.18 That is, over the
life of the loans, the insured loans are projected to make money for the government rather than
require an appropriation from the government to pay for their costs. (This applies only to the
costs associated with the insured loans themselves; credit subsidy rates do not include the
administrative costs of a program. FHA does receive appropriations for administrative contract
expenses and for salaries.19) The original credit subsidy rate estimates for FHA-insured loans
have ranged from a low of -0.05% in FY2009 to a high of -9.03% in FY2015.20 The total amount
of money that FHA would expect to earn on loans insured in a given year depends on the total
dollar amount of loans it insures in that year as wel as the credit subsidy rate.
If FHA’s single-family program were ever estimated to have a positive credit subsidy rate for the
upcoming fiscal year, it would require an appropriation to cover the difference between the
amount of money FHA expected to take in and pay out over the life of the loans. If funding was

16 For more information on recent trends in FHA offsetting receipts and their role in the budget process, see CRS
Report R42542, Departm ent of Housing and Urban Developm ent (HUD): Funding Trends Since FY2002 .
17 FHA, in conjunction with OMB, estimates the expected gain or cost of insuring mortgages during the fiscal year in
the President’s annual budget requests. T he Congressional Budget Office (CBO) calculates its own estimate of the
expected gains or costs using its own models and assumptions. T he CBO numbers are the ones that are used in the
appropriations process, including determining whether the FHA single-family mortgage insurance program will require
an appropriation and determining the amount of any offsetting receipts.
18 While FHA’s traditional single-family mortgage program has always been estimated to have a negative credit
subsidy rate in the year that the loans are insured, other FHA programs have at times been estimated to have positive
credit subsidy rates. When this occurs, appropriations must be provided in order for FHA to enter into new
commitments to insure loans under those programs in those fiscal years.
19 In FY2021, FHA received an appropriation of $130 million for administrative contract expenses for all of its
programs, including multifamily and healthcare facilities programs. Funding for salaries is appropriated as part of
HUD’s overall appropriation for salaries and expenses. Annual appropriations laws also provide FHA with the
authority to enter into commitments to insure loans (called commitment authority), allowing FHA to insure up to a
certain maximum dollar volume of loans. In FY2021, Congress authorized FHA to insure up to a total of $400 billion
in mortgages under the MMI Fund.
20 Some examples of reasons for the differences in the original credit subsidy rates across years could include
differences in the mortgage insurance premiums that were being charged in that year, differences in the anticipated
credit quality of loans being insured, or differences in the expected future trajectory of economic factors (such as
interest rates or house prices) that can impact prepayments, defaults, and the amount that FHA can r ecover after a
foreclosure.
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not appropriated to cover a
FHA and “Fair Value” Accounting
positive subsidy rate, then FHA
would not be able to insure new
FHA’s credit subsidy rates are calculated in accordance with the
methodology specified in the FCRA. This methodology takes into
loans in that year. (For a brief
account expected costs (primarily claims) and gains (primarily premium
discussion of a proposed
revenue) associated with loans insured in a given year, and arrives at a
change in the required method
net present value of the future cash flows on these loans by using
of calculating credit subsidy
interest rates on Treasury bonds as a discount rate. The interest rate on
rates that could result in the
Treasury bonds does not account for market risk, because Treasury
bonds are assumed to be virtual y risk-free. However, some have
MMI Fund having a positive
suggested that credit subsidy rate estimates would more accurately
credit subsidy rate, see the text
reflect the value of the mortgages if the discount rate included
box, “FHA and “Fair Value”
adjustments for market risk. Accounting for market risk in calculating
Accounting.”)
credit subsidy is referred to as the “fair value” approach.

In 2011, the Congressional Budget Office (CBO) released a report that
In the Trump Administration’s
discusses the difference between FCRA accounting and a fair value
approach specifical y as it relates to FHA. (See Congressional Budget
FY2021 budget request, the
Office, Accounting for FHA’s Single-Family Mortgage Insurance Program on a
credit subsidy rate for the MMI
Fair-Value Basis, May 18, 2011, http://www.cbo.gov/publication/41445.)
Fund, excluding reverse
The CBO report found that using a fair value approach would have
mortgages, was estimated to be
changed the estimate of FY2012 credit subsidy for the MMI Fund
negative 3.36% for FY2021. At
programs from a negative number to a positive number. This means that,
had the fair value approach been used, the loans that FHA expected to
an expected insurance volume
insure in that year would have been projected to lose money rather than
of $200 bil ion, the budget
earn money over the life of the loans, and FHA would have needed an
estimated that the MMI Fund
appropriation to insure new loans in that year.
forward portfolio would earn
The debate over how to calculate subsidy rates for FHA’s loan program
about $6.7 bil ion in negative
is part of a larger debate over whether subsidy costs of government loan
credit subsidy in FY2021.21
guarantees in general should reflect an adjustment for market risk. For

more information on the issues involved, see CRS Report R44193,
CBO does its own credit
Federal Credit Programs: Comparing Fair Value and the Federal Credit Reform
subsidy estimates, and these
Act (FCRA) .
estimates are the ones that are
used during the appropriations process. For FY2021, CBO estimated that FHA’s single-family
programs (excluding reverse mortgages) would generate about $8.5 bil ion in negative credit
subsidy.22 CBO’s higher credit subsidy estimate, as compared to the budget request, results from
somewhat higher estimates of both the credit subsidy rate and overal loan volume for the FHA
forward portfolio in FY2021.
Annual Credit Subsidy Rate Re-estimates
The amount of money that loans insured by FHA in a given year actual y earn for or cost the
government over the course of their lifetime is likely to be different from the original credit
subsidy estimates due to better or worse than expected performance of those loans. Federal credit
reform accounting recognizes this, and provides permanent and indefinite budget authority to
federal credit programs to cover any increased costs of loan guarantees in the future.
Each year, in consultation with OMB, FHA re-estimates each prior year’s credit subsidy rates
based on the actual performance of the loans and other factors, such as updated economic

21 See Office of Management and Budget, “Loan Guarantees: Subsidy Rates, Obligations, and Average Loan Size,” in
the Federal Credit Supplement to the FY2021 President’s Budget at https://www.govinfo.gov/app/collection/budget/
2021/BUDGET -2021-FCS, and U.S. Department of Housing and Urban Development, FY2021 Congressional Budget
Justifications
, p. 28-2, https://www.hud.gov/sites/dfiles/CFO/documents/31_FY21CJ_FHA_Fund.pdf.
22 Congressional Budget Office, Estimated Budgetary Effects of Major Federal Programs that Guarantee Mortgages –
CBO’s March 2020 Baseline, https://www.cbo.gov/system/files/2020-03/51297-2020-03-mortgages.pdf.
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projections. Although the original credit subsidy rate for the single-family mortgage insurance
program each year has historical y been estimated to be negative, the credit subsidy rate re-
estimates for the loans insured in several fiscal years are currently estimated to be positive,
suggesting that FHA wil actual y pay out more money than it earns on the loans insured in those
years.
Table 1 shows the original credit subsidy rate estimates and the most current re-estimated credit
subsidy rates (as of the date of this report) for the loans insured in each fiscal year between 1992
and 2019. The first column shows the original credit subsidy rate. In al cases the original subsidy
rate estimates were negative (shown in green), meaning that the loans insured in those years were
original y expected to make money for the government. The second column shows the current re-
estimated credit subsidy rate for each year. Re-estimated credit subsidy rates are shown in green if
they remained negative (even if they are less favorable than the original estimate) and in red if
they have become positive. (See the PDF version of this report to see the table in color.)
For most years, the current re-estimated credit subsidy rate is less favorable than the original
estimate, although many of the re-estimated credit subsidy rates are stil negative. A lower, but
stil negative, credit subsidy estimate suggests that the loans insured in that fiscal year wil stil
make money for the government, but less than was original y estimated. In most years between
FY2000 and FY2009, the re-estimates of the subsidy rates are positive (shown in red), meaning
that the loans insured in these years are currently expected to lose money overal . In six years—
FY1992, FY2010, FY2012, FY2016, FY2017, and FY2018—the current re-estimated subsidy
rate is more favorable than the original estimated subsidy rate, meaning that the loans insured in
those years are now expected to make more money than original y estimated.
Table 1. MMI Fund Credit Subsidy Rates and Re-estimates
(FY1992-FY2019)
Original
Re-estimated
Fiscal Year
Subsidy Rate
Subsidy Rate
1992
-2.60%
-3.24%
1993
-2.70%
-2.66%
1994
-2.79%
-1.79%
1995
-1.95%
-0.72%
1996
-2.77%
-1.03%
1997
-2.88%
-0.99%
1998
-2.99%
-1.41%
1999
-2.62%
-1.23%
2000
-1.99%
0.26%
2001
-2.15%
0.14%
2002
-2.07%
0.44%
2003
-2.53%
-0.14%
2004
-2.47%
2.72%
2005
-1.80%
6.37%
2006
-1.70%
7.88%
2007
-0.37%
9.93%
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Original
Re-estimated
Fiscal Year
Subsidy Rate
Subsidy Rate
2008
-0.25%
7.25%
2009
-0.05%
1.77%
2010
-0.86%
-1.23%
2011
-3.10%
-2.80%
2012
-2.53%
-4.45%
2013
-7.22%
-5.14%
2014
-7.25%
-5.05%
2015
-9.03%
-4.90%
2016
-3.70%
-4.91%
2017
-4.42%
-4.55%
2018
-3.18%
-3.79%
2019
-3.20%
-3.11%
Source: Table created by CRS based on Office of Management and Budget, The President’s Budget for Fiscal Year
2021
, Federal Credit Supplement Spreadsheets, Loan Guarantees: Subsidy Re-estimates, https://www.govinfo.gov/app/
col ection/budget/2021/BUDGET-2021-FCS.
Note: These credit subsidy rates do not include FHA-insured reverse mortgages.
MMI Fund Account Balances
The credit subsidy rate re-estimates affect the way in which funds are held in the MMI Fund. The
MMI Fund consists of two primary accounts: the Financing Account and the Capital Reserve
Account.23 The Financing Account holds funds to cover expected future losses on FHA-insured
loans. The Capital Reserve Account holds additional funds to cover any additional, unexpected
future losses. Funds are transferred between the two accounts each year on the basis of the re-
estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover
updated projections of expected losses on insured loans. If the credit subsidy rate re-estimates
reflect an aggregate increase in expected losses, funds are transferred from the Capital Reserve
Account to the Financing Account to cover the amount of the increase in expected losses. If the
credit subsidy rate re-estimates reflect a decrease in aggregate expected losses, funds are
transferred from the Financing Account to the Capital Reserve Account.
Table 2 il ustrates the changes in these account balances between FY2008 and FY2020. In the
years following the housing market turmoil that began around 2007, the credit subsidy rate re-
estimates showed aggregate increases in expected losses on FHA-insured loans, requiring large
transfers of funds from the Capital Reserve Account to the Financing Account to cover these
additional expected future losses. At the end of FY2008, the MMI Fund held $9 bil ion in the
Financing Account and $19.3 bil ion in the Capital Reserve Account. The amounts needed in the
Financing Account increased over the next several years and the amounts held in the Capital
Reserve Account decreased, reaching zero at the end of FY2013 (when the MMI Fund received
funds from Treasury to make a required transfer of funds to the Financing Account). By the end

23 T he Capital Reserve Account is an on-budget account; the Financing Account is an off-budget account that reflects
the actual cash flows associated with loans insured under the MMI Fund.
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of FY2014, the MMI Fund had begun to rebuild its reserves, holding $7.3 bil ion in the Capital
Reserve Account. As of the end of FY2020, the Capital Reserve Account held $69.6 bil ion.24
Table 2. MMI Fund Account Balances, FY2008-FY2020
($ in bil ions)
Capital Reserve
Fiscal Year
Financing Account
Account
Total
FY2008
$9.0
$19.3
$28.2
FY2009
$21.1
$10.7
$31.8
FY2010
$28.9
$4.4
$33.3
FY2011
$29.0
$4.7
$33.7
FY2012
$35.1
$3.3
$38.4
FY2013
$48.4
$0.0
$48.4
FY2014
$38.9
$7.3
$46.2
FY2015
$29.6
$16.0
$45.6
FY2016
$12.6
$37.2
$49.8
FY2017
$18.5
$31.6
$50.1
FY2018
$23.0
$27.2
$50.2
FY2019
$4.3
$51.0
$55.3
FY2020
$10.3
$69.6
$79.9
Source: U.S. Department of Housing and Urban Development, FHA Single-Family Mutual Mortgage Insurance Fund
Programs, Quarterly Report to Congress
, for FY2008 through FY2020, http://portal.hud.gov/hudportal/HUD?src=/
program_offices/housing/rmra/oe/rpts/rtc/fhartcqtrly.
Notes: Figures reflect total account balances as of the fourth quarter of each fiscal year. Account balances
represent the amount of liquid assets that are immediately available to pay for claim expenses, not the overal
asset position of the MMI Fund.
Although the total resources held in these accounts have increased over the last several years, the
total dollar volume of mortgages insured by FHA has also increased, from about $400 bil ion at
the end of FY2008 to about $1.3 tril ion at the end of FY2020.25
Permanent and Indefinite Budget Authority
Recognizing the fact that estimating the lifetime cost of loan guarantees is inexact, the Federal
Credit Reform Act of 1990 includes permanent and indefinite budget authority for federal loan
guarantee programs to cover the cost of credit subsidy rate re-estimates.26 Therefore, if FHA ever

24 U.S. Department of Housing and Urban Development, FHA Single-Family Mutual Mortgage Insurance Fund
Program s, Quarterly Report to Congress, FY2020 Q4,
p. 13, http://portal.hud.gov/hudportal/HUD?src=/
program_offices/housing/rmra/oe/rpts/rtc/fhartcqtrly.
25 T hese figures represent total amortized insurance-in-force for the MMI Fund (that is, the current aggregate loan
amount outstanding, rather than the initial aggregate loan amount). Figures come from U.S. Department of Housing and
Urban Development, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage
Insurance Fund Fiscal Year 2009
, p. 17, and the Annual Report to Congress Regarding the Financial Status of the
FHA Mutual Mortgage Insurance Fund Fiscal Year 2020
, p. 60.
26 2 U.S.C. §661c(f).
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needs to transfer more money than it has in the Capital Reserve Account to the Financing Account
to cover an increase in expected losses on insured loans, it can draw on its permanent and
indefinite budget authority to receive funds from Treasury to make this transfer without additional
congressional action.27
Any funds drawn from Treasury to make a required transfer of funds to the Financing Account are
not spent immediately. Rather, they are held in the Financing Account, and used to pay claims to
lenders only if the rest of the funds in the Financing Account are exhausted. If economic
conditions and loan performance improve, or if loans insured in the future bring in enough money
to both cover their own costs and pay for past loans that defaulted, it is possible that any money
received from Treasury would never actual y be spent. On the other hand, if future insured loans
do not bring in enough funds to cover losses on past loans, or if economic conditions and loan
performance do not improve, any funds received from Treasury could eventual y be spent to pay
actual claims.
When the President’s budget request for FY2014 was released in April 2013, it included an
estimate that the MMI Fund would need a mandatory appropriation of $943 mil ion from
Treasury during FY2013 in order to make a required transfer of funds from the Capital Reserve
Account to the Financing Account.28 FHA had until the end of FY2013 to make the required
transfer of funds, and there was a possibility that the MMI Fund would bring in enough additional
funds through the negative credit subsidy it earned on loans that it insured in FY2013 to make the
required transfer without depleting the Capital Reserve Account. However, due to reduced loan
volumes in FY2013, the MMI Fund earned less than anticipated during the year.
At the end of September 2013, HUD announced that the MMI Fund needed about $1.7 bil ion to
ensure that enough money was available in the Financing Account to cover al expected future
losses on insured loans. It received these funds from Treasury using the permanent and indefinite
budget authority provided under the FCRA. This amount was nearly twice what was anticipated
in the President’s budget, and represented the first time that FHA had ever needed funds from
Treasury to make a required transfer of funds from the Capital Reserve Account to the Financing
Account.29 FHA has not needed to draw additional funds from Treasury since that time.

27 T he credit subsidy rate re-estimates are included as part of the President’s budget that is usually released in February
of each year. Any required transfer of funds between the Financing Account and the Capital Reserve Account usually
occurs in May or June, but can happen as late as September.
28 The Appendix, Budget of the United States Government, Fiscal Year 201 4, p. 574, https://www.gpo.gov/fdsys/pkg/
BUDGET -2014-APP/pdf/BUDGET -2014-APP.pdf.
29 T he President’s FY2013 budget request had indicated that FHA could need to draw on its permanent and indefinite
budget authority for $688 million during FY2012. (See The Appendix, Budget of the United States Governm ent, Fiscal
Year 2013
, p. 636, https://www.gpo.gov/fdsys/pkg/BUDGET -2013-APP/pdf/BUDGET -2013-APP-1-13.pdf.)
However, FHA did not end up needing funds from T reasury that year. Increases in mortgage insurance premiums for
new borrowers, as well as money that FHA received in settlements with large mortgage companies related to claims
that the companies did not adhere to FHA requirements in originating and servicing loans, brought in enough funds to
make the required transfer. See the Written T estimony of Shaun Donovan, Secretary of U.S. Department of Housing
and Urban Development, Hearing before the Subcommittee on T ransportation, Housing and Urban Development, and
Related Agencies, U.S. House of Representatives Committee on Appropriations on “ FY2013 Budget Request for the
Department of Housing and Urban Development,” March 21, 2012, p. 7, http://appropriations.house.gov/uploadedfiles/
hhrg-112-ap20-wstate-sdonovan-20120321.pdf; and U.S. Congress, Senate Committee on Appropriations,
Subcommittee on T ransportation, Housing and Urban Development, and Related Agencies, Hearing on President
Obama’s Fiscal 2014 Budget Proposal for the Federal Housing Administration
, 113th Cong., 2nd sess., June 4, 2013.
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Where to Find Key Information on the MMI Fund in Federal Budget Documents

FHA’s estimates of credit subsidy rates and the dol ar amounts of loans that FHA expects to insure in the
upcoming fiscal year are provided in the HUD budget justifications for the MMI Fund. HUD budget
justifications are available on HUD’s website at https://www.hud.gov/program_offices/cfo/budget.

The re-estimated credit subsidy rates for the loans that FHA insured in previous years are in the Federal
Credit Supplement of the President’s budget. The Federal Credit Supplement is available at
https://www.whitehouse.gov/omb/supplemental-materials/.

If FHA expects to need funds from Treasury during a fiscal year to cover higher-than-expected future costs
of loan guarantees, the amount that FHA expects to need is reflected as a mandatory appropriation in the
Appendix of the President’s budget.30 The most current Budget Appendix is at https://www.whitehouse.gov/
omb/appendix/. Prior years’ Budget Appendices can be accessed at https://www.gpo.gov/fdsys/browse/
col ectionGPO.action?col ectionCode=BUDGET.
Annual Actuarial Review and Annual Report to
Congress on the Financial Status of the MMI Fund
Separately from the annual budget process, FHA is required by law to obtain an independent
actuarial review each year that analyzes the financial position of the MMI Fund and to provide an
annual report to Congress on the results of the actuarial review.31 This review traditional y
analyzes the MMI Fund’s financial position by reporting the amount of funds that it currently has
on hand and estimating the net amount (in present value terms) that it expects to earn or lose in
the future on loans that it currently insures. These numbers are added together to compute the
“economic value” of the MMI Fund. The economic value is the amount of money that the MMI
Fund would be projected to have on hand after al of the cash flows associated with its insured
loans are realized, assuming that it does not insure any more loans going forward. The results of
the actuarial review are presented in FHA’s annual report to Congress on the financial status of
the MMI Fund.
The budgetary treatment and the actuarial review of the MMI Fund are two different ways of
looking at the same thing—namely, how the loans insured under the MMI Fund have performed
and are expected to perform in the future, and the effect of this loan performance on the financial
position of the MMI Fund. However, the annual actuarial review is separate from the federal
budget process, and uses somewhat different economic assumptions than those used in the federal
budget. This section describes the actuarial review and accompanying annual report to Congress
along with important related concepts. It then discusses the results of the FY2020 actuarial review
and annual report that were released in November 2020.
In the annual actuarial review, the independent actuary reviews the MMI Fund’s financial
information to estimate the MMI Fund’s current financial position, including both forward and
reverse mortgages insured under the fund.32 This usual y includes reporting the amount of funds

30 For example, in the FY2014 budget request, p. 574 of the Appendix reflects that FHA expected to need $943 million
from T reasury for the MMI Fund in FY2013. (T he actual amount that FHA ult imately needed from T reasury was
higher, at $1.7 billion.)
31 T his requirement was originally codified at 12 U.S.C. 1711(g) and was enacted as part of the Omnibus Budget
Reconciliation Act of 1990 (P.L. 101-508) and the Cranston-Gonzalez National Affordable Housing Act of 1990 (P.L.
101-625). (Both laws included identical provisions related to the actuarial soundness of the MMI Fund; P.L. 101-508
was enacted first.) Since the enactment of the Housing and Economic Recovery Act of 2008 ( P.L. 110-289), the
requirement for an annual independent actuarial review is codified at 12 U.S.C. 1708(a)(4).
32 T here are actually two annual actuarial reviews: one analyzes only traditional FHA-insured single-family forward
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that the MMI Fund currently has on hand and estimating the cash flows that it expects in the
future—such as premiums paid into the fund and claims paid out of the fund—on the loans that it
currently insures. It uses economic modeling to project the MMI Fund’s financial status for the
current year and several years into the future under a “base case” scenario and several alternative
economic scenarios. Some of the key terms used in the actuarial report and FHA’s annual report
on the financial status of the MMI Fund include the following:
Capital resources are the net assets (assets33 minus liabilities) that the MMI Fund
currently has on hand that can be converted into cash to pay claims on defaulted
mortgages or other expenses.
Present value of future cash flows on outstanding business is the estimated
amount that the MMI Fund is currently expected to gain or lose in the future, in
present value terms, on the loans that it currently insures (this estimate does not
take into account any new loans that might be insured in the future).
Economic value or economic net worth is the MMI Fund’s capital resources plus
the present value of its future cash flows on outstanding business. It represents
the amount of capital resources that the MMI Fund would have after expected
future cash flows on currently insured loans are realized. In other words, it
represents the amount that the MMI Fund could use to pay for any additional,
unexpected losses on its outstanding loans.
The law also mandates that FHA meet a 2% capital ratio requirement, which means that the
economic value of the MMI Fund must be at least 2% of the total dollar volume of mortgages that
FHA currently insures.34 The capital ratio is calculated on the basis of the actuarial report. The
capital ratio fel below this 2% requirement in FY2009 and remained below 2% for several years
thereafter, turning negative in FY2012 and FY2013. The capital ratio was estimated to be positive
again in FY2014 and was estimated to exceed 2% in FY2015 and each subsequent year to date.
FY2020 Results
The FY2020 annual actuarial review and FHA’s accompanying annual report to Congress on the
MMI Fund’s financial status were released in November 2020. In its annual report, FHA reported
the MMI Fund’s total capital
resources to be $70.7 bil ion. This is
Where to Find FHA Reports on the MMI Fund
the amount of resources that FHA
The FHA reports discussed in this section, including the annual
currently has on hand that can be
actuarial review and FHA’s annual report to Congress on the
converted into cash to pay claims.
financial status of the MMI Fund, can be accessed from HUD’s
FHA estimated the present value of
Office of Housing Reading Room web page at
future cash flows on insured loans
http://portal.hud.gov/hudportal/HUD?src=/program_offices/
(including both forward and reverse
housing/hsgrroom.
mortgages) to be $8.3 bil ion. In other
words, in net present value terms, the loans that FHA currently insures are expected to result in an

mortgages, and the other analyzes only FHA-insured reverse mortgages. Both of these actuarial reviews can be found at
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/actr/actrmenu. FHA combines the
numbers from the two actuarial reviews to arrive at a total economic value of the MMI Fund in the Annual Report to
Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund
, which can be found at
http://portal.hud.gov/hudportal/HUD?src=/fhammifrpt.
33 T he MMI Fund’s assets include things such as cash, T reasury investments, and foreclosed properties held by HUD.
34 12 U.S.C. 1711(f).
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additional $8.3 bil ion for the MMI Fund over the remaining life of those loans. The economic
value of the MMI Fund, therefore, was estimated by FHA to be approximately $79 bil ion ($70.7
bil ion + $8.3 bil ion), including both forward and reverse mortgages.35 The independent actuary
separately estimated the present value of future cash flows on insured loans for the MMI Fund.
While the actuary’s estimate differed somewhat from FHA’s, it found FHA’s estimate to be
reasonable.36
The estimated economic value of $79 bil ion was an increase of about $16.6 bil ion compared to
FY2019, when the MMI Fund was estimated to have an economic value of $62.4 bil ion.
In FY2012 and FY2013, the MMI Fund was estimated to have a negative economic value. A
negative economic value means that the funds that the MMI Fund currently has on hand, plus the
present value of the funds that it expects to earn in premiums on loans that it currently insures,
would not be enough to pay for the present value of claims on the loans that are currently insured.
For example, in FY2013 the MMI Fund was estimated to have an economic value of negative
$1.3 bil ion. This meant that, based on the MMI Fund’s capital resources and estimates of future
cash flows on insured loans as of the time the report was prepared, FHA was expected to be short
about $1.3 bil ion when al of its currently insured loans were eventual y paid off.37 In contrast,
the FY2020 economic value of positive $79 bil ion means that the MMI Fund would be estimated
to have that amount left over after al of the expected future cash flows (including premium
payments and insurance claims) on its currently insured mortgages were realized. This provides a
“cushion” should future losses on insured mortgages be higher than currently anticipated.
The projections included in the actuarial report and the annual report to Congress rely on several
assumptions. For one thing, the estimates of the MMI Fund’s current status assume that FHA wil
not insure any more mortgages. In actuality, FHA wil likely continue to insure loans, which wil
bring in additional resources in the form of premium revenues, but wil also create new liabilities
in terms of claims.
Furthermore, the actuarial review relies upon assumptions about future economic conditions. To
the extent that actual future economic conditions differ from these assumptions, the estimates of
the MMI Fund’s value wil also be different.38 Although FHA estimates that the MMI Fund’s

35 U.S. Department of Housing and Urban Development, Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2020,
p. 60, https://www.hud.gov/sites/dfiles/Housing/
documents/2020FHAAnnualReportMMIFund.pdf.
36 T he independent actuary calculated the net present value of future cash flows on insured forward loans to be positive
$23.4 billion, compared to FHA’s estimate of positive $10.4 billion. It calculated the net present value of future cash
flows on insured HECMs to be negative $329 m illion, compared to FHA’s estimate of negative $2.1 billion. Combined,
FHA’s estimate of the present value of future cash flows for the MMI Fund is positive $8.3 billion while the actuary’s
is positive $23.1 billion. See Pinnacle Actuarial Resources, Inc., Fiscal Year 2020 Independent Actuarial Review of the
Mutual Mortgage Insurance Fund: Cash Flow Net Present Value from Forward Mortgage Insurance -in-Force
,
November 12, 2020, pp. 3 and 32; Pinnacle Actuarial Resources, Inc., Fiscal Year 2020 Independent Actuarial Review
of the Mutual Mortgage Insurance Fund: Cash Flow Net Present Value from Hom e Equity Conversion Mortgage
Insurance-in-Force
, November 12, 2020, pp. 3 and 5; and U.S. Department of Housing and Urban Development,
Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year
2020
, p. 80.
37 A negative economic value does not mean that FHA is currently out of money. P rojected losses on the loans insured
by FHA are realized over the life of those loans, rather than all at once, potentially giving FHA time to increase its
capital resources before these projected losses are realized. Whether or not the MMI Fund will ever actually run out of
money to pay claims depends on factors such as whether the projections of future cash flows are accurate and whether
the MMI Fund is able to build enough additional capital resources over time, such as through additional premium
revenue from newly insured mortgages, to pay for these expected claims.
38 T o understand how assumptions about future economic conditions affect estimates of the MMI Fund’s current value,
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economic value in FY2020 is positive $79 bil ion, it notes that, under a variety of alternative
future economic scenarios, the MMI Fund’s economic value could be different, including
potential y negative values under certain conditions. Both the actuarial report and the annual
report to Congress include an analysis of the MMI Fund’s financial position under various
alternative economic scenarios.39
The 2% Capital Ratio Requirement
As noted earlier, the MMI Fund is also required by law to maintain a capital ratio of 2%.40 This is
often referred to as the capital ratio requirement.
Brief History of the Capital Ratio Requirement
The capital ratio requirement for the MMI Fund was enacted in 1990 amid concerns about the
solvency of the FHA single-family mortgage insurance program. At the time, the MMI Fund had
a negative economic value. This meant that the expected future cash flows associated with the
mortgages currently insured by the MMI Fund, when combined with the capital resources that the
MMI Fund currently had on hand, were not expected to be enough to pay for al future claims on
FHA-insured loans.
In response to these concerns, the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508)
mandated that, going forward, the MMI Fund’s economic value must be at least 2% of the total
dollar amount of loans that it is currently insuring.41 The capital ratio is an expression of the
economic value of the MMI Fund as a percentage of the total dollar volume of loans insured by
the MMI Fund. It is a measure of how much capital the MMI Fund wil have available to pay for
unexpected losses on currently insured loans, after the amounts estimated to be needed to cover
expected losses are taken into account.
In addition to establishing the capital ratio requirement, P.L. 101-508 also directed FHA to make
certain changes that were intended to improve the MMI Fund’s financial condition. The changes
that the law required included charging borrowers an annual mortgage insurance premium to go
along with the existing premium that was paid upfront and suspending certain payments (known
as distributive shares) that had previously been paid to borrowers under certain conditions. The

consider that, for example, the future path of house prices affects current estimates of future cash flows on mortgages
insured under the MMI Fund. If house prices fall more than expected in the future, then cash flows on currently insured
mortgages might be more negative than currently anticipated due to more foreclosures and foreclosed properties held
by FHA selling for less money; if house prices rise mo re than expected in the future, then cash flows on currently
insured mortgages might be more positive than currently anticipated due to fewer foreclosures and foreclosed
properties selling for more money. Likewise, assumptions about other economic indicato rs in the future also impact
current estimates of future cash flows associated with currently insured mortgages.
39 See the discussions beginning on page 67 of the Annual Report to Congress Regarding the Financial Status of the
FHA Mutual Mortgage Insurance Fund Fiscal Year 2020
, beginning on page 37 of the Fiscal Year 2020 Independent
Actuarial Review of the Mutual Mortgage Insurance Fund: Econom ic Net Worth of Forward Mortgage Insurance -in-
Force
, and beginning on page 27 of the Fiscal Year 2020 Independent Actuarial Review of the Mutual Mortgage
Insurance Fund: Econom ic Net Worth from Hom e Equity Conversion Mortgage Insurance-in-Force
.
40 12 U.S.C. 1711(f).
41 T he law calls for the capital ratio to be calculated as the economic value of the MMI Fund divided by unamortized
insurance-in-force. Unamortized insurance-in-force is generally understood to mean the original principal balance of
insured mortgages. However, the law defines unamortized insurance-in-force as “ the remaining obligation on
outstanding mortgages,” a definition that is usually understood to be amortized insurance-in-force. Historically, the
actuarial reports often included both amortized and unamortized insurance-in-force as generally understood, allowing
the capital ratio to be calculated both ways.
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law also established the requirement for the annual independent actuarial review of the MMI
Fund. Some of these changes, such as the additional mortgage insurance premium, essential y
meant that FHA would charge more to future borrowers to build up reserves to pay for losses on
mortgages made to past borrowers.
As Congress considered the legislation prior to enactment, there was debate over the appropriate
level for the capital ratio requirement.42 This debate highlights the ongoing tension that FHA
faces between maintaining its financial soundness and carrying out its purpose of expanding
access to affordable mortgage credit for underserved borrowers. The 2% threshold was adopted
because it was viewed as being high enough to provide FHA with a cushion to withstand some
unexpected losses, but without imposing an undue financial burden on future FHA-insured
borrowers. A higher capital ratio requirement would have likely required FHA to charge higher
premiums for FHA insurance. It was recognized that a 2% requirement would likely be high
enough to withstand moderate future economic downturns, but would likely not be high enough
to al ow the MMI Fund to withstand a catastrophic economic downturn. According to testimony
from the General Accounting Office (GAO, now the Government Accountability Office) from
2000:
Determining what constitutes an adequate reserve level is essentially a question of what
kinds of adverse economic conditions—moderately severe or catastrophic—the reserve
should be able to withstand.... In the actuarial review of the Fund conducted by Price
Waterhouse for fiscal year 1989, the researchers concluded that actuarial soundness would
be consistent with a reserve that could withstand adverse, but not catastrophic, economic
downturns. They further concluded that the Treasury implicitly covers catastrophic risk...
By contrast, rating agencies have taken the position, when evaluating private mortgage
insurers, that they should have enough capital to withstand catastrophic risk.... However,
requiring FHA to hold capital equivalent to that held by private mortgage insurers would
likely impair FHA’s public purpose.43
While the law requires the Secretary of HUD to ensure that the MMI Fund maintains a capital
ratio of 2%, it does not currently specify consequences or specific actions that the Secretary must
take if the capital ratio fal s below that threshold.44 Furthermore, GAO has noted that the 2%
capital ratio requirement does not take into account specific economic conditions the MMI Fund
should be expected to withstand. It has suggested that Congress could consider enacting
legislation to specify such conditions, and to require FHA to maintain a capital ratio that is based
on the MMI Fund’s ability to withstand those specific economic scenarios.45
While the results of the actuarial review and the estimate of the capital ratio provide important
information about the financial soundness of the MMI Fund, the results of the actuarial review

42 See the discussion of the history of the capital ratio in Charles A. Capone Jr., “Credit Risk, Capital, and Federal
Housing Administration Mortgage Insurance,” Journal of Housing Research, Volume 11, Issue 2, pp. 373-401.
43 U.S. General Accounting Office, Mortgage Financing: Financial Health of the Federal Housing Administration’s
Mutual Mortgage Insurance Fund
, Statement of Stanley J. Czerwinski before the Subcommittee on Housing and
T ransportation, Senate Committee on Banking, Housing and Urban Affairs, September 12, 2000, pp. 7-8,
http://gao.gov/assets/110/108623.pdf.
44 T he capital ratio requirement is codified at 12 U.S.C. §1711(f). A separate section of the law, 12 U.S.C. §1708(a)(3),
also requires the Secretary to make sure that the MMI Fund is financially sound. 12 U.S.C. 1708(a)(6) provides that the
Secretary “may” make adjustments to the FHA program or adjust mortgage insurance premiums if the MMI Fund is not
meeting certain goals or if there is “ substantial probability” that the MMI Fund will not meet the 2% capital ratio.
However, there are no specific actions that the Secretary is directed to take if the 2% capital ratio requirement is not
met.
45 See, for example, Government Accountability Office, Federal Housing Administration: Capital Requirements and
Stress Testing Practices Need Strengthening
, GAO-18-92, November 2017, https://www.gao.gov/products/GAO-18-
92.
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and the capital ratio estimate do not determine whether or not FHA wil need to draw on its
permanent and indefinite budget authority with Treasury for funds to hold against expected future
losses or to pay claims. That is determined as part of the re-estimate process that is done as part of
the federal budgeting process each year, which is described in the “The MMI Fund in the Federal
Budget” section of this report.
FY2020 Capital Ratio
The capital ratio is reported in FHA’s annual report to Congress on the financial status of the
MMI Fund. In FY2020, the annual report estimated the economic value of the MMI Fund to be
$79 bil ion. The total dollar volume of mortgages currently insured by the MMI Fund was $1.295
tril ion, which means that the capital ratio was estimated to be 6.1% ($79 bil ion divided by
$1.295 tril ion). This represents an increase from FY2019, when the capital ratio was estimated to
be 4.84%. The capital ratio remained above 2% for the sixth straight year; FY2015 was the first
time the capital ratio had exceeded 2% since FY2008.
In FY2009, the capital ratio was estimated to be 0.53%.46 This was the first time that the capital
ratio had fal en below 2% since the requirement was first met in FY1995.47 The capital ratio
remained below 2% from FY2009 through FY2014, when the capital ratio was estimated to be
0.41%.48 In FY2012 and FY2013, the capital ratio was estimated to be negative 1.44% and
negative 0.11%, respectively.49 FY2012 was the first time that the MMI Fund had been estimated
to have a negative capital ratio since the early 1990s, when Congress enacted the series of
changes aimed at ensuring the financial soundness of the MMI Fund, including the requirement
for an independent annual actuarial review and the required capital ratio.50
A negative capital ratio by itself does not trigger any special assistance from Treasury, although it
suggests that such assistance could be needed at some point. Rather, any assistance from Treasury
is triggered if the credit subsidy rate re-estimates described in the “Annual Credit Subsidy Rate
Re-estimates”
section show that FHA needs to transfer more funds than it has in its Capital
Reserve Account into its Financing Account to cover increases in expected future losses. The
amount of assistance required from Treasury is based on the credit subsidy rate re-estimates, not
on the capital ratio or the economic value of the MMI Fund as reported in the actuarial report.

46 U.S. Department of Housing and Urban Development, Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2009
, November 12, 2009, p. 17, http://portal.hud.gov/
hudportal/documents/huddoc?id=fhammifannrptfy2009.pdf.
47 U.S. Department of Housing and Urban Development, Office of Policy Development and Research, “T he FHA
Single-Family Insurance Program: Performing a Needed Ro le in the Housing Finance Market,” Executive Summary, p.
3, http://www.huduser.org/publications/pdf/FHA_SingleFamilyIns_2012.pdf. T he discussion of the history of FHA
notes that the capital ratio requirement of 2% was first reached in FY1995.
48 U.S. Department of Housing and Urban Development, Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2014
, November 17, 2014, p. 35, https://www.hud.gov/sites/
documents/FY2014FHAANNREP11_17_14.PDF.
49 U.S. Department of Housing and Urban Development, Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2013
, December 13, 2013, p. 34, https://www.hud.gov/sites/
documents/FY2013REPCONGFINST MMIFUND.PDF.
50 See, for example, General Accounting Office, Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration’s Mutual Mortgage Insurance Fund
, statement of T homas J. McCool before the Subcommittee on
Housing and Community Opportunity, House Committee on Financial Services, March 20, 2001, p. 2, showing an
estimated negative economic value of the MMI Fund in 1990 and 1991.
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Table 3 shows the MMI Fund’s financial position, including its economic value, dollar volume of
insured mortgages, and capital ratio, as estimated by the independent actuary and FHA for each
fiscal year between FY2006 and FY2020.51
Table 3. Results of the Annual Actuarial Review of the MMI Fund, FY2006-FY2020
($ in mil ions)
Dollar
Volume of
Capital
PV of Future
Economic
Insured
Fiscal Year
Resources
Cash Flows
Value
Mortgages
Capital Ratio
FY2006
$23,461
-$1,440
$22,021
$298,542
7.38%
FY2007
$25,365
-$3,952
$21,277
$305,449
6.97%
FY2008
$27,281
-$14,374
$12,908
$401,461
3.22%
FY2009
$30,719
-$27,078
$3,641
$684,708
0.53%
FY2010
$33,594
-$28,937
$4,657
$931,272
0.50%
FY2011
$32,431
-$29,880
$2,551
$1,078,000
0.24%
FY2012a
$30,362
-$46,638
-$16,277
$1,131,543
-1.44%
FY2013a
$29,680
-$31,010
-$1,330
$1,178,154
-0.11%
FY2014a
$28,432
-$23,667
$4,765
$1,156,741
0.41%
FY2015a
$30,862
-$7,040
$23,822
$1,151,458
2.07%
FY2016a
$35,346
-$7,795
$27,551
$1,188,569
2.32%
FY2017b
$40,857
-$14,112
$26,745
$1,226,843
2.18%
FY2018
$49,237
-$14,375
$34,862
$1,264,672
2.76%
FY2019
$57,980
$4,402
$62,382
$1,288,436
4.84%
FY2020
$70,652
$8,298
$78,950
$1,294,731
6.10%
Source: U.S. Department of Housing and Urban Development, Annual Report to Congress Regarding the Financial
Status of the FHA Mutual Mortgage Insurance Fund
, for FY2006 through FY2020.
Notes: Figures are based on the base case scenario reported in the actuarial reports. The dol ar volume of
insured mortgages is amortized insurance-in-force. FHA-insured reverse mortgages became part of the MMI
Fund in FY2009.
a. In FY2017, FHA aligned the values used for capital resources and dol ar volume of insured mortgages with
reporting in FHA’s annual audited financial statements. These changes were also applied to recent previous
years, resulting in slight changes to the capital ratios for FY2012-FY2016 (between 0.01 and 0.10 percentage
points). The table reflects the values reported in the applicable year’s annual reports for the years prior to
FY2017 rather than the revised figures.
b. FHA restated its FY2017 figures for capital resources, economic value, and the capital ratio in the FY2018
annual report due to a correction of a material error in the reporting of FHA’s assets for FY2017. The
restated figures are slightly higher than those that were original y reported. The FY2017 figures provided in
the table are the restated figures provided in the FY2018 annual report.

51 T he FY2017 annual report to Congress on the MMI Fund’s financial status presented slightly revised capital ratios
for FY2012 through FY2016 as a result of an effort to align the figures used for certain components of the capital ratio
with other FHA financial reporting. T he figures in the text and in the table are the ones that were reported in the
original actuarial reviews and annual reports for those fiscal years rather than the revised figures; the difference
between the original estimates and the revised figures ranges from 0.01 to 0.10 percentage points. Specifically, t he
revised capital ratios reported in the Annual Report to Congress Regarding the Financial Status of the FHA Mutual
Mortgage Insurance Fund Fiscal Year 2017
were -1.34% for FY2012, -0.12% for FY2013, 0.42% for FY2014, 2.10%
for FY2015, and 2.35% for FY2016. See p. 59 of the report.
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The drop in the capital ratio in the years immediately following 2007 resulted from both a
decrease in the numerator of the ratio (the MMI Fund’s economic value) and an increase in the
denominator of the ratio (total dollar volume of mortgages outstanding) as the volume of
mortgages insured by FHA increased. The decrease in the MMI Fund’s economic value, in turn,
was mostly due to the fact that the present value of future cash flows became increasingly
negative for a time, suggesting that FHA was expecting large net cash outflows over the life of
the loans that it was currently insuring.
Selected Issues
Potential Impact of the COVID-19 Pandemic
FHA’s annual report to Congress reported strong financial results for the MMI Fund for FY2020
despite the ongoing COVID-19 pandemic, which has impacted the ability of many households to
make mortgage payments. However, the continuing pandemic does pose ongoing risks to the
MMI Fund, including risks stemming from the high number of FHA borrowers currently in
forbearance and uncertainties about the future trajectory of the economy.52
FHA has taken a variety of steps in response to the pandemic, including implementing mortgage
forbearance provisions that were included in the Coronavirus Aid, Relief, and Economic Security
(CARES) Act (P.L. 116-136) and placing a temporary moratorium on foreclosures on FHA-
insured mortgages.53 As of the end of FY2020, about 12% of FHA-insured mortgages were 90 or
more days behind on mortgage payments (including mortgages subject to forbearance
agreements).54 The ultimate resolution of these mortgages—and the ultimate effects on the MMI
Fund—remain uncertain as the effects of the pandemic and its impacts on households and the
economy continue to unfold. To the extent that future economic conditions differ from the
projections used to estimate the MMI Fund’s financial position, the ultimate resolutions of these
mortgages and the associated financial impact on FHA could be different than anticipated.
Ongoing house price appreciation, in particular, played a large role in the MMI Fund’s strong
financial position in FY2020. If house price trends should reverse, the impact on the MMI Fund
could be significant.55

52 For a discussion of some of these risks, see HUD, Annual Report to Congress Regarding the Financial Status of the
FHA Mutual Mortgage Insurance Fund, FY2020
, pp. 67-74.
53 FHA extended the temporary moratorium on foreclosures several times since first announcing it in March 2020.
T hese extensions are usually announced through FHA Mortgagee Letters, available at https://www.hud.gov/
program_offices/administration/hudclips/letters/mortgagee. As of the date of this report, the moratorium was to be in
effect through June 30, 2021. See FHA Mortgagee Letter 2021 -05, Extensions of Single Fam ily Foreclosure and
Eviction Moratorium , Start Date of COVID-19 Initial Forbearance, and HECM Extension Period; Expansion of
COVID-19 Loss Mitigation Options
, February 16, 2021, https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-
05hsgml.pdf.
54 HUD, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,
FY2020
, pp. 36-37.
55 HUD, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,
FY2020
, pp. 69-74.
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Role of FHA-Insured Reverse Mortgages in the Annual Actuarial
Review
FHA-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), were
moved into the MMI Fund beginning in FY2009. In contrast to traditional forward mortgages,
HECMs are FHA-insured reverse mortgages for elderly homeowners who are seeking to access
their accumulated home equity.56 HECMs that were insured by FHA prior to FY2009 are
obligations of a different FHA insurance fund, but HECMs insured in FY2009 or later are
obligations of the MMI Fund.57
The dollar amount of HECMs insured under the MMI Fund is much smal er than the amount of
traditional forward mortgages: about $63 bil ion of the $1.3 tril ion of insurance-in-force under
the MMI Fund are HECMs.58 However, changes in the estimated value of HECMs can have a
significant impact on the MMI Fund’s overal economic value and on the capital ratio.
Estimates of HECM performance are particularly sensitive to economic assumptions, such as
future house prices and interest rates, making the value of the HECM portfolio volatile. While the
value of forward mortgages insured under the MMI Fund has consistently increased since
FY2012, the value of HECMs has been estimated to be negative more often than positive during
that time frame.59
The volatility in the HECM portfolio can be seen in the results of recent actuarial reviews and in
the standalone capital ratios for the forward and HECM portfolios as reported by FHA. As shown
in Figure 1, the standalone capital ratio for the forward mortgage portfolio alone has steadily
increased from negative 0.91% in FY2012 to positive 6.31% in FY2020. In comparison, the
standalone capital ratio for HECMs has fluctuated during that time period, ranging from a high of
positive 3.07% in FY2013 to a low of negative 18.83% in FY2018, and was estimated to be
negative 0.78% in FY2020.60 Given the smal er overal insurance volume of the HECM portfolio,
changes in the portfolio’s economic value can have a larger impact on the HECM standalone
capital ratio than a comparable dollar volume change in the larger forward portfolio would have
on its standalone capital ratio. Nevertheless, the trends in the standalone capital ratios il ustrate
differences in the performance of the two portfolios.

56 For more information on HECMs, see CRS Report R44128, HUD’s Reverse Mortgage Insurance Program: Home
Equity Conversion Mortgages
.
57 HECMs endorsed prior to FY2009 are obligations of the General and Special Risk Insurance Fund (GI/SRI Fund).
T he Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289) made HECMs an obligation of the MMI
Fund going forward.
58 U.S. Department of Housing and Urban Development , Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2020
, p. 66. HECM insurance-in-force is the aggregate unpaid
principal balance of HECMs insured under the MMI Fund. T he FHA annual reports began reporting HECM insurance -
in-force this way in FY2017, rather than using the maximum claim amount for these mortgages, as was use d in prior
years. See pp. 7-8 of the FY2017 annual report and p. 17 of the FY2018 annual report for more information on this
change.
59 U.S. Department of Housing and Urban Development , Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2016
, p. 21, and Annual Report to Congress Regarding the
Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year 2020
, p. 63.
60 T hese figures reflect certain methodological changes that FHA made in how it calculates the economic value and
capital ratio for HECMs beginning in FY2017, including reflecting cross-subsidies between the two portfolios. Figures
provided for past years use the updated methodology, whereas elsewhere in this report the figures used for the MMI
Fund as a whole are those reported using the methodology that was in place at the time. See HUD, Annual Report to
Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year 2017,
pp. 60-65,
https://www.hud.gov/sites/dfiles/Housing/documents/2017fhaannualreportMMIFund.pdf.
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Figure 1. Standalone Capital Ratios for Forward Mortgages and HECMs
FY2012-FY2020

Source: HUD’s Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund
for FY2017 (pp. 62 and 64), FY2018 (pp. 68 and 72), and FY2020 (p. 63).
Notes: These standalone capital ratios reflect methodological changes that FHA implemented in FY2017 for
both its current and prior-year figures.
The volatility of HECMs and their inclusion in the MMI Fund potential y raise some policy
questions. In its FY2015 annual report on the status of the MMI Fund, FHA noted that including
both HECMs and forward mortgages in the fund could make it more difficult to independently
assess the financial health of the separate programs, particularly since the capital ratio for the
entire MMI Fund is often used as a proxy for the performance of the much larger forward
mortgage portfolio.61 Furthermore, including both types of mortgages in the same fund could
impact policies related specifical y to forward mortgages, such as the level of fees paid by
borrowers, in response to instability in the MMI Fund driven by HECMs.62 For these reasons,
some industry groups and other observers have argued that Congress should consider legislation
to remove HECMs from the MMI Fund.63 However, GAO and others have noted that removing
HECMs from the MMI Fund would involve tradeoffs.64


61 U.S. Department of Housing and Urban Development , Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2015 ,
p. 44.
62 U.S. Department of Housing and Urban Development , Annual Report to Congress Regarding the Financial Status of
the FHA Mutual Mortgage Insurance Fund Fiscal Year 2015,
p. 42.
63 For example, see the Mortgage Bankers Association, “FHA Insurance Fund Capital Reserves Fall; Capital Ratio
Remains Above T hreshold,” press release, November 16, 2017, https://www.mba.org/mba-newslinks/2017/november/
mba-newslink-thursday-11-16-17/fha-insurance-fund-capital-reserves-fall-capital-ratio-remains-above-threshold, and
Edward Golding and Laurie Goodman, “T o better assess the risk of FHA programs, separate reverse and forward
mortgages,” Urban Institute, Urban Wire blog post, November 29, 2017, https://www.urban.org/urban-wire/better-
assess-risk-fha-programs-separate-reverse-and-forward-mortgages.
64 GAO has described both advantages and disadvantages to including both forward and reverse mortgages in the MMI
Fund; see GAO, Federal Housing Adm inistration: Capital Requirem ents and Stress Testing Practices Need
Strengthening
, beginning on p. 25.
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Author Information

Katie Jones

Analyst in Housing Policy



Disclaimer
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Congressional Research Service
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