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

December 21, 2012 – May 27, 2022 R42875

FHA Single-Family Mortgage Insurance:
May 27, 2022
Financial Status of the Mutual Mortgage
Katie Jones
Insurance Fund (MMI Fund)
Analyst in Housing Policy

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 protecting lenders against the possibility of borrower default, FHA insurance 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 small 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 (called premiums), rather than through appropriations. However, like all
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 currently 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 all 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 well
as economic factors such as falling 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 fell below 2% in FY2009 and remained below 2% for several years thereafter, turning negative
in FY2012 and FY2013. At the end of FY2013, FHA announced that it would need $1.7 billion from Treasury to cover an
increase in anticipated costs of insured loans. This marked the first time that FHA needed funds from Treasury to be able to
make a required transfer of funds between the secondary and primary 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 FY2021 actuarial review of the MMI Fund estimated the
economic value of the MMI Fund to be positive $100.5 billion and the capital ratio to be 8.03%. This suggests that the MMI
Fund would have about $100 billion remaining after realizing all of its expected future cash flows on currently insured
mortgages. The FY2021 results represent an increase from FY2020, when the capital ratio was estimated to be 6.10% and the
economic value was estimated to be $79 billion.

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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, called
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 all. For
example, FHA requires a smaller down payment than many other types of mortgages, potentially
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 called the
Mutual Mortgage Insurance Fund (MMI Fund).3 Since FY2009, the MMI Fund has included
FHA-insured reverse mortgages as well 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 The 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. This report focuses only on FHA’s single-family program.
2 The 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 Family 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. The lender makes payments to the
borrower, and is repaid with the proceeds from the sale of the home when the homeowner dies or no longer occupies
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: Home 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 will be discussed in more detail later in this report, the MMI Fund, like all 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.
In the years following the housing and mortgage market turmoil that began around 2007, rising
mortgage default rates and falling home prices put pressure on the MMI Fund. This resulted in
the capital ratio falling 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 falling below 2%, and then turning negative, raised concerns that the MMI Fund
would not have enough money to cover all of its expected future losses on the loans that it was
currently insuring. At the end of FY2013, the MMI Fund received $1.7 billion 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 needed funds from Treasury for this purpose. The MMI Fund has not needed to draw such
funds from Treasury in subsequent years.
FHA faces an inherent tension between facilitating the provision of mortgage credit to
underserved borrowers and safeguarding the health of the MMI Fund. Many in Congress have
expressed ongoing interest in the affordability, accessibility, and sustainability of FHA-insured
mortgages, as well as 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 effects 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

5 FHA does receive appropriations to pay for staff salaries and administrative contract expenses.
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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.
Foreclosures and Associated Loss Severities
Traditionally, 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 called a claim payment. 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 selling 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 reselling 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.7 Not all delinquent or defaulted
mortgages will 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 impact
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.
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
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

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 notes 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 For information on the shares of FHA-insured mortgages in various stages of delinquency or in the foreclosure
process, see FHA’s monthly FHA Single-Family Loan Performance Trends reports at https://www.hud.gov/
program_offices/housing/hsgrroom/loanperformance.
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.
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modifications.9 Other options will 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 will 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 selling the property. In general, the amount that it recoups
will usually 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 selling 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 selling foreclosed properties directly to third parties at a foreclosure auction rather
than conveying the properties to HUD. Different property disposition methods might result in
different average loss severity rates.12

9 Specific home retention loss mitigation options for FHA-insured mortgages include various types of forbearance
agreements and the FHA-Home Affordable Modification Program (FHA-HAMP), which can include a loan
modification, a partial claim, or a combination of the two. Forbearance agreements allow a borrower to reduce or
suspend mortgage payments for a specified period of time, and to repay the amount owed at a later date. Loan
modifications change the terms of the mortgage, such as the interest rate, to make mortgage payments more affordable.
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. For more information on FHA loss mitigation
options, see https://www.hud.gov/program_offices/housing/sfh/nsc/lossmit or Section III.A.2.j of HUD Handbook
4000.1.
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 Family 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 Programs, available at https://www.hud.gov/program_offices/housing/rmra/oe/rpts/
rtc/fhartcqtrly.
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 Programs.
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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, potentially affecting the overall
amount of premium revenue that FHA earns. Furthermore, raising premiums too high could
reduce the overall quality of the mortgages that FHA insures by potentially making FHA-insured
mortgages a less attractive option for all but the borrowers who present the largest credit risk.
Higher premiums also increase the costs of FHA-insured mortgages for homebuyers, potentially
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. As of the cover date of this report, 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.14
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 overall 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 all, economic conditions can impact default and foreclosure rates. If more people become
unemployed or underemployed, or if home prices fall such that people cannot sell their homes if
they can no longer afford their mortgages, then more people may face default or foreclosure.
Falling house prices also limit the amount that FHA can recoup when it sells a foreclosed
property. Conversely, strong employment conditions may help to limit the extent to which people

13 For more information on FHA’s mortgage insurance premiums, see CRS Report RS20530, FHA-Insured Home
Loans: An Overview.
14 Annual appropriations acts authorize FHA to insure up to a certain dollar volume of mortgages under the MMI Fund
each year. The actual dollar volume of loans that FHA insures in a given year depends on a variety of factors, but
cannot exceed the limits set in appropriations acts.
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encounter mortgage distress due to job loss, and rising house prices can make it easier for
distressed borrowers to sell their homes if necessary to avoid foreclosure.
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 will 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 well as the decision by homeowners to refinance their mortgages,
which affects how much premium revenue FHA expects to earn as well 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 will stop paying premiums to FHA,
reducing the amount of revenue that FHA takes in. However, FHA’s overall liabilities will also be
reduced since it will 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 ensure it has sufficient reserves to cover 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.15 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.16
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

15 For more information on how the costs of federal credit programs are treated in the federal budget, see archived CRS
Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and
Issues for Congress.
16 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 insured in that year. The “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 insurance 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.17
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.18 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, how much FHA will have to pay in future insurance claims related
to those loans, and how much money FHA will be able to recover by selling 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 rates in the year that they are insured.19 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.20) 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 FY2015.21 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 well 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, Congress would need to appropriate funds to cover the difference between the amount of

17 For more information on recent trends in FHA offsetting receipts and their role in the budget process, see CRS
Report R42542, Department of Housing and Urban Development (HUD): Funding Trends Since FY2002.
18 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. The Congressional Budget Office (CBO) calculates its own estimate of the
expected gains or costs using its own models and assumptions. The 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.
19 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.
20 In FY2022, FHA received an appropriation of $150 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 the FY2022 appropriations law, Congress authorized FHA to insure up to a
total of $400 billion in mortgages under the MMI Fund, with that commitment authority remaining available through
FY2023.
21 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 recover after a
foreclosure.
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money FHA would be expected
FCRA and “Fair Value” Accounting
to take in and pay out over the
life of the loans in order for
FHA’s credit subsidy rates are calculated in accordance with the
methodology specified in the FCRA. This methodology takes into
FHA to insure new loans in that
account expected costs (primarily claims) and gains (primarily premium
year.22
revenue) associated with loans insured in a given year, and arrives at a
net present value of the future cash flows on these loans by using
In the Biden Administration’s
interest rates on Treasury bonds as a discount rate. The interest rate on
FY2023 budget request, the
Treasury bonds does not account for market risk, because Treasury
bonds are assumed to be virtually risk-free. However, some have
credit subsidy rate for the MMI
suggested that credit subsidy rate estimates would more accurately
Fund, excluding reverse
reflect the value of federal loans and loan guarantees if the discount rate
mortgages, was estimated to be
included adjustments for market risk. Accounting for market risk in
negative 3.05% for FY2023. At
calculating credit subsidy is referred to as the “fair value” approach. For
an expected insurance volume
more information on the issues involved, see CRS Report R44193,
Federal Credit Programs: Comparing Fair Value and the Federal Credit Reform
of $225 billion, the budget
Act (FCRA).
estimated that the MMI Fund
The Congressional Budget Office (CBO) has analyzed differences in the
forward portfolio would earn
projected costs of federal loans and loan guarantees under the FCRA and
about $6.9 billion in negative
fair value methods. In measuring the costs of new federal loans and loan
credit subsidy in FY2023.23
guarantees projected to be provided in FY2022 (including, but not
However, the Congressional
limited to, FHA-insured mortgages and other housing loan programs),
CBO found that using FCRA procedures resulted in estimated budgetary
Budget Office (CBO) does its
savings, while using fair value procedures resulted in an estimated
own credit subsidy estimates
budgetary cost. The magnitude of the difference varied substantially by
for the purposes of the
program. See CBO, Estimates of the Cost of Federal Credit Programs in
congressional appropriations
2022, October 2021, https://www.cbo.gov/system/files/2021-10/57412-
process, and these estimates can
Federal-Credit-Programs.pdf.
differ from those included in
the budget request.24
Under current law, subsidy rates for federal credit programs are estimated according to
procedures specified in FCRA. Some have called for implementing alternative approaches for
estimating subsidy rates using procedures that account for market risk. For a brief discussion of
an alternative approach to calculating credit subsidy rates that could be more likely to result in the
MMI Fund having a positive credit subsidy rate, see the text box, “FCRA and “Fair Value”
Accounting.”
Annual Credit Subsidy Rate Re-estimates
The amount of money that loans insured by FHA in a given year actually earn for or cost the
government over the course of their lifetime is likely to be different from the original credit

22 The permanent and indefinite budget authority discussed elsewhere in this report is available to cover increases in the
expected costs of loans that FHA already insures; it does not apply to situations where there are positive credit subsidy
estimates for loans that have yet to be insured. Hence, if the loans expected to be insured under the MMI Fund in an
upcoming fiscal year were estimated to have a positive credit subsidy rate, Congress would have to appropriate funding
to cover those subsidy costs in order for FHA to insure new loans in that year.
23 See Office of Management and Budget, “Loan Guarantees: Subsidy Rates, Obligations, and Average Loan Size,” in
the Federal Credit Supplement to the FY2023 President’s Budget at https://www.govinfo.gov/app/collection/budget/
2023/BUDGET-2023-FCS; and U.S. Department of Housing and Urban Development, FY2023 Congressional Budget
Justifications, p. 28-3, https://www.hud.gov/sites/dfiles/CFO/documents/31_FY21CJ_FHA_Fund.pdf (discussing
estimated negative subsidy receipts for the forward and reverse mortgage portfolios combined).
24 In general, CBO estimates of credit subsidy rates and credit subsidy receipts for FHA forward mortgages insured
under the MMI Fund can be found on CBO’s website under “Federal Programs that Guarantee Mortgages” at
https://www.cbo.gov/data/baseline-projections-selected-programs#5.
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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
projections. Although the original credit subsidy rate for the single-family mortgage insurance
program each year has historically 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 will actually 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 2021. The first column shows the original credit subsidy rate. In all cases the original subsidy
rate estimates were negative (shown in green), meaning that the loans insured in those years were
originally 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 still negative. A less negative
credit subsidy estimate suggests that the loans insured in that fiscal year will still make money for
the government, but less than was originally 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 overall. In eight years—FY1992,
FY2010, FY2012, FY2016, FY2017, FY2018, FY2020, and FY2021—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 originally estimated.
Table 1. MMI Fund Credit Subsidy Rates and Re-estimates
(FY1992-FY2021)
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%
-1.40%
1999
-2.62%
-1.23%
2000
-1.99%
0.26%
2001
-2.15%
0.14%
2002
-2.07%
0.44%
2003
-2.53%
-0.16%
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Original
Re-estimated
Fiscal Year
Subsidy Rate
Subsidy Rate
2004
-2.47%
2.66%
2005
-1.80%
6.14%
2006
-1.70%
7.73%
2007
-0.37%
9.69%
2008
-0.25%
7.21%
2009
-0.05%
1.78%
2010
-0.86%
-1.37%
2011
-3.10%
-2.87%
2012
-2.53%
-4.79%
2013
-7.22%
-5.15%
2014
-7.25%
-5.05%
2015
-9.03%
-4.87%
2016
-3.70%
-4.92%
2017
-4.42%
-4.70%
2018
-3.18%
-4.08%
2019
-3.20%
-3.20%
2020
-2.27%
-4.40%
2021
-3.36%
-5.08%
Source: Table created by CRS based on Office of Management and Budget, The President’s Budget for Fiscal Year
2023, Federal Credit Supplement Spreadsheets, Loan Guarantees: Subsidy Reestimates, https://www.govinfo.gov/app/
col ection/budget/2023/BUDGET-2023-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.25 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 illustrates the changes in these account balances between FY2008 and FY2021. 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

25 The 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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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 billion in the
Financing Account and $19.3 billion 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
of FY2014, the MMI Fund had begun to rebuild its reserves, holding $7.3 billion in the Capital
Reserve Account. As of the end of FY2021, the Capital Reserve Account held nearly $98
billion.26
Table 2. MMI Fund Account Balances, FY2008-FY2021
(dollars in billions)
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
FY2021
$4.6
$97.8
$102.3
Source: U.S. Department of Housing and Urban Development, FHA Single-Family Mutual Mortgage Insurance Fund
Programs, Quarterly Reports to Congress, 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 overall
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 billion at
the end of FY2008 to about $1.3 trillion at the end of FY2021.27

26 U.S. Department of Housing and Urban Development, FHA Single-Family Mutual Mortgage Insurance Fund
Programs, Quarterly Report to Congress, FY2021 Q4, p. 14, http://portal.hud.gov/hudportal/HUD?src=/
program_offices/housing/rmra/oe/rpts/rtc/fhartcqtrly.
27 These 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
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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.28 Therefore, if FHA ever
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.29
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 actually 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 eventually 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 million from
Treasury during FY2013 in order to make a required transfer of funds from the Capital Reserve
Account to the Financing Account.30 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 billion to
ensure that enough money was available in the Financing Account to cover all 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.31 FHA has not needed to draw additional funds from Treasury to make a required
transfer since that time.

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 2021, p. 56.
28 2 U.S.C. §661c(f).
29 The 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.
30 The Appendix, Budget of the United States Government, Fiscal Year 2014, p. 574, https://www.gpo.gov/fdsys/pkg/
BUDGET-2014-APP/pdf/BUDGET-2014-APP.pdf.
31 The 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 Government, 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 Treasury 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
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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 Federal Credit Supplement of the President’s budget in the table
titled “Loan Guarantees: Subsidy Rates, Commitments, and Average Loan Size.” The Federal Credit
Supplement is available at https://www.whitehouse.gov/omb/supplemental-materials/. Additional information
may be provided in HUD’s budget justifications, which 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 also in the Federal
Credit Supplement of the President’s budget, in the table titled “Loan Guarantees: Subsidy Reestimates.”

If FHA expects to need funds from Treasury during a fiscal year to make a required transfer of funds to the
Financing Account 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.32 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.33 This review traditionally
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” or “economic net worth” of the MMI Fund. The economic value is the amount
of money that the MMI Fund would be projected to have on hand after all 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

make the required transfer. See the Written Testimony of Shaun Donovan, Secretary of U.S. Department of Housing
and Urban Development, Hearing before the Subcommittee on Transportation, 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, https://archives.hud.gov/testimony/2012/
test120321.cfm and U.S. Congress, Senate Committee on Appropriations, Subcommittee on Transportation, 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.
32 For example, in the FY2014 budget request, p. 574 of the Appendix reflects that FHA expected to need $943 million
from Treasury for the MMI Fund in FY2013. (The actual amount that FHA ultimately needed from Treasury was
higher, at $1.7 billion.)
33 This 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).
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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 FY2021 actuarial review
and annual report that were released in November 2021.
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.34 This usually includes reporting the amount of funds
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 (assets35 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.36 The capital ratio is calculated on the basis of the actuarial report. The
capital ratio fell 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.

34 There are actually two annual actuarial reviews: one analyzes only traditional FHA-insured single-family forward
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.
35 The MMI Fund’s assets include things such as cash, Treasury investments, and foreclosed properties held by HUD.
36 12 U.S.C. §1711(f).
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FY2021 Results
The FY2021 annual actuarial review and FHA’s accompanying annual report to Congress on the
MMI Fund’s financial status were released in November 2021. In its annual report, FHA reported
the MMI Fund’s total capital
resources to be $83.6 billion. 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 $16.9 billion. In
other words, in net present value terms, the loans that FHA currently insures are expected to result
in an additional $16.9 billion 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 $100.5
billion ($83.6 billion + $16.9 billion), including both forward and reverse mortgages.37 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.38
The estimated economic value of $100.5 billion was an increase of about $21.5 billion compared
to FY2020, when the MMI Fund was estimated to have an economic value of $79 billion.
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 billion. 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 billion when all of its currently insured loans were eventually paid off.39 In contrast,

37 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 2021, p. 56, https://www.hud.gov/sites/dfiles/Housing/
documents/2021FHAAnnualReportMMIFund.pdf.
38 The independent actuary calculated the net present value of future cash flows on insured forward loans to be positive
$25.7 billion, compared to FHA’s estimate of positive $16.5 billion. It calculated the net present value of future cash
flows on insured HECMs to be positive $1.1 billion, compared to FHA’s estimate of positive $390 million. Combined,
FHA’s estimate of the present value of future cash flows for the MMI Fund is positive $16.9 billion while the actuary’s
is positive $26.8 billion. See Pinnacle Actuarial Resources, Inc., Fiscal Year 2021 Independent Actuarial Review of the
Mutual Mortgage Insurance Fund: Economic Value of Forward Mortgage Insurance-In-Force, November 2021, pp. 1
and 4; Pinnacle Actuarial Resources, Inc., Fiscal Year 2021 Independent Actuarial Review of the Mutual Mortgage
Insurance Fund: Economic Net Worth from Home Equity Conversion Mortgage Insurance-In-Force, November 2021,
pp. 1 and 4; 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 2021, pp. 55, 61, and 63.
39 A negative economic value does not mean that FHA is currently out of money. Projected 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 would ever actually run out
of funds, absent assistance from Treasury, would depend on factors such as whether projections of future cash flows
were accurate and whether the MMI Fund would be able to build enough additional capital resources over time, such as
through additional premium revenue from newly insured mortgages, to pay for expected claims.
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the FY2021 economic value of positive $100.5 billion means that the MMI Fund would be
estimated to have that amount left over after all 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 will
not insure any more mortgages. In actuality, FHA will likely continue to insure loans, which will
bring in additional resources in the form of premium revenues, but will 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 will also be different.40 Although FHA estimates that the MMI Fund’s
economic value in FY2021 is positive $100.5 billion, it notes that, under a variety of alternative
future economic scenarios, the MMI Fund’s economic value could be different. Both the actuarial
report and the annual report to Congress include analyses of aspects of the MMI Fund’s financial
position under various alternative economic scenarios.41
The 2% Capital Ratio Requirement
As noted earlier, the MMI Fund is also required by law to maintain a capital ratio of 2%.42 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 all 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

40 To understand how assumptions about future economic conditions affect estimates of the MMI Fund’s current value,
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 more 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 indicators in the future also impact
current estimates of future cash flows associated with currently insured mortgages.
41 See the discussions beginning on page 68 of the Annual Report to Congress Regarding the Financial Status of the
FHA Mutual Mortgage Insurance Fund Fiscal Year 2021, beginning on page 43 of the Pinnacle Actuarial Resources
Fiscal Year 2021 Independent Actuarial Review of the Mutual Mortgage Insurance Fund: Economic Value of Forward
Mortgage Insurance-In-Force, and beginning on page 30 of the Pinnacle Actuarial Resources Fiscal Year 2021
Independent Actuarial Review of the Mutual Mortgage Insurance Fund: Economic Net Worth from Home Equity
Conversion Mortgage Insurance-in-Force.
42 12 U.S.C. §1711(f).
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dollar amount of loans that it is currently insuring.43 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 will 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
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, essentially
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.44 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 allow 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.45

43 The 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.
44 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.
45 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
Transportation, Senate Committee on Banking, Housing and Urban Affairs, September 12, 2000, pp. 7-8,
http://gao.gov/assets/110/108623.pdf.
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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 falls below that threshold.46 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.47
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
and the capital ratio estimate do not determine whether or not FHA will 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.
FY2021 Capital Ratio
The capital ratio is reported in FHA’s annual report to Congress on the financial status of the
MMI Fund. In FY2021, the annual report estimated the economic value of the MMI Fund to be
$100.5 billion. The total dollar volume of mortgages currently insured by the MMI Fund was
$1.25 trillion, which means that the capital ratio was estimated to be 8.03% ($100.5 billion
divided by $1.25 trillion). This represents an increase from FY2020, when the capital ratio was
estimated to be 6.10%. The capital ratio remained above 2% for the seventh 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%.48 This was the first time that the capital
ratio had fallen below 2% since the requirement was first met in FY1995.49 The capital ratio
remained below 2% from FY2009 through FY2014, when the capital ratio was estimated to be
0.41%.50 In FY2012 and FY2013, the capital ratio was estimated to be negative 1.44% and
negative 0.11%, respectively.51 FY2012 was the first time that the MMI Fund had been estimated

46 The 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.
47 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.
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 2009, November 12, 2009, p. 17, http://portal.hud.gov/
hudportal/documents/huddoc?id=fhammifannrptfy2009.pdf.
49 U.S. Department of Housing and Urban Development, Office of Policy Development and Research, “The FHA
Single-Family Insurance Program: Performing a Needed Role in the Housing Finance Market,” Executive Summary, p.
3, http://www.huduser.org/publications/pdf/FHA_SingleFamilyIns_2012.pdf. The discussion of the history of FHA
notes that the capital ratio requirement of 2% was first reached in FY1995.
50 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.
51 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/
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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.52
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.
Table 3 shows the MMI Fund’s financial position, including its economic value, dollar volume of
insured mortgages, and capital ratio, as provided in FHA’s annual reports to Congress on the
financial status of the MMI Fund for each fiscal year between FY2006 and FY2021.53
Table 3. Results of the Annual Actuarial Review of the MMI Fund, FY2006-FY2021
(dollars in millions)
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%

documents/FY2013REPCONGFINSTMMIFUND.PDF.
52 See, for example, General Accounting Office, Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration’s Mutual Mortgage Insurance Fund, statement of Thomas 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.
53 The 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. The 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, the
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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Dollar
Volume of
Capital
PV of Future
Economic
Insured
Fiscal Year
Resources
Cash Flows
Value
Mortgages
Capital Ratio
FY2019
$57,980
$4,402
$62,382
$1,288,436
4.84%
FY2020
$70,652
$8,298
$78,950
$1,294,731
6.10%
FY2021
$83,604
$16,871
$100.475
$1,251,270
8.03%
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 FY2021.
Notes: Figures are based on base case scenarios. 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 originally reported. The FY2017 figures provided in
the table are the restated figures provided in the FY2018 annual report.
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 FY2021
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 number of FHA borrowers who are seriously
delinquent (including in forbearance) and uncertainties about the future trajectory of the
economy.54
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 (the foreclosure moratorium expired at the end of July 2021).55 As of the end

54 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, FY2021, pp. 64-73.
55 FHA extended the temporary moratorium on foreclosures several times after first announcing it in March 2020.
These extensions were announced through FHA Mortgagee Letters, available at https://www.hud.gov/program_offices/
administration/hudclips/letters/mortgagee. The final extension lasted until July 31, 2021, after which the foreclosure
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FHA: Financial Status of the Mutual Mortgage Insurance Fund

of FY2021, about 9% of FHA-insured mortgages were seriously delinquent; nearly half of these
seriously delinquent mortgages (47%) were in forbearance agreements while the remainder were
not.56 (As of March 2022, the share of FHA-insured mortgages that were seriously delinquent had
fallen to about 6%.57) 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.58 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 FY2021. If house price trends should reverse, the impact on the MMI Fund
could be significant.59
Financial Status of the MMI Fund and Mortgage Insurance
Premiums
As noted previously in this report, there is often a tension between the competing goals of
safeguarding the financial status of the MMI Fund and expanding access to affordable mortgages
to underserved borrowers. At times when the financial status of the MMI Fund appears strong,
there are often calls to reduce or otherwise change FHA’s mortgage insurance premiums to make
FHA-insured mortgages more affordable to prospective borrowers. In response to the FY2021
MMI Fund annual report, there have been calls to reduce mortgage insurance premiums,60 shorten
the duration for which annual premiums are charged,61 provide more-targeted premium cuts for
certain types of borrowers,62 or make other changes.63
While FHA may consider making changes to its mortgage insurance premiums to increase
affordability, it also has to consider the potential impact of any such changes on the MMI Fund.
As noted in the previous section, and in FHA’s annual report, several economic and COVID-19
pandemic-related uncertainties could impact the performance of mortgages insured under the

moratorium expired. See FHA Mortgagee Letter 2021-19, Extension of the Foreclosure-Related Eviction Moratorium
and Expiration of the Foreclosure Moratorium in Connection with the Presidentially-Declared COVID-19 National
Emergency, July 30, 2021, https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-19hsgml.pdf.
56 HUD, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,
FY2021, p. 15 and p. 34.
57 HUD, FHA Single-Family Loan Performance Trends, March 2022, p. 2, https://www.hud.gov/sites/dfiles/Housing/
documents/FHALPT_Mar2022.pdf.
58 HUD, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,
FY2021, pp. 72-73.
59 HUD, Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,
FY2021, pp. 67-71.
60 Community Mortgage Lenders of America, “CMLA Says FHA Premiums Must be Cut Today,” statement,
November 18, 2021, http://thecmla.com/cmla/2021/11/18/cmla-says-fha-premiums-must-be-cut-today/.
61 Scott Olson, Executive Director of the Community Home Lenders Association, “Opinion: Why the FHA should end
its Life of Loan policy,” National Mortgage News, November 18, 2021, https://www.nationalmortgagenews.com/
opinion/why-the-fha-should-end-its-life-of-loan-policy.
62 Laurie Goodman and Jim Parrott, The FHA’s Annual Report, Its Financial Health, and How It Should Cut Pricing,
Urban Institute Housing Finance Policy Center, December 7, 2021, https://www.urban.org/research/publication/fhas-
annual-report-its-financial-health-and-how-it-should-cut-pricing.
63 “Three Ways to Support Homeowners in Distress Instead of Cutting Monthly Mortgage Payments,” blog post, Urban
Institute Urban Wire blog, February 3, 2022, https://www.urban.org/urban-wire/three-ways-support-homeowners-
distress-instead-cutting-monthly-mortgage-payments.
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MMI Fund going forward. In addition, economic projections—particularly related to house
prices—play a large role in estimates of the MMI Fund’s current favorable capital position.
Changes in the trajectory of house prices could have a substantial effect on estimates of the MMI
Fund’s financial status and could rapidly reduce estimates of the MMI Fund’s capital and capital
ratio, as was the case in the years following FY2007. Such considerations are part of what FHA
weighs in deciding whether, when, or how to make any changes to FHA premiums.
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.64 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.65
The dollar amount of HECMs insured under the MMI Fund is much smaller than the amount of
traditional forward mortgages: about $63 billion of the $1.3 trillion of insurance-in-force under
the MMI Fund are HECMs.66 However, changes in the estimated value of HECMs can have a
significant impact on the MMI Fund’s overall 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.67
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 7.99% in FY2021. In comparison, the
standalone capital ratio for HECMs has fluctuated during that time period, ranging from a high of
positive 6.08% in FY2021 to a low of negative 18.83% in FY2018.68 Given the smaller overall

64 For more information on HECMs, see CRS Report R44128, HUD’s Reverse Mortgage Insurance Program: Home
Equity Conversion Mortgages.
65 HECMs endorsed prior to FY2009 are obligations of the General and Special Risk Insurance Fund (GI/SRI Fund).
The Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289) made HECMs an obligation of the MMI
Fund going forward.
66 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 2021, p. 63. HECM insurance-in-force is the aggregate unpaid
principal balance of HECMs insured under the MMI Fund. The 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 used 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.
67 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 2021, p. 60.
68 These 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
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insurance volume of the HECM portfolio, changes in the HECM 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 the forward portfolio’s standalone capital
ratio. Nevertheless, the trends in the standalone capital ratios illustrate differences in the
performance of the two portfolios.
Figure 1. Standalone Capital Ratios for Forward Mortgages and HECMs
FY2012-FY2021

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 FY2021 (p. 60).
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 potentially 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.69 Furthermore, including both types of mortgages in the same fund could
impact policies related specifically to forward mortgages, such as the level of fees paid by
borrowers, in response to instability in the MMI Fund driven by HECMs.70 For these reasons,
some industry groups and other observers have argued that Congress should consider legislation

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.
69 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.
70 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.
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to remove HECMs from the MMI Fund.71 However, GAO and others have noted that removing
HECMs from the MMI Fund would involve tradeoffs.72

Author Information

Katie Jones

Analyst in Housing Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

71 For example, see the Mortgage Bankers Association, “FHA Insurance Fund Capital Reserves Fall; Capital Ratio
Remains Above Threshold,” 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, “To 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.
72 GAO has described both advantages and disadvantages to including both forward and reverse mortgages in the MMI
Fund; see GAO, Federal Housing Administration: Capital Requirements and Stress Testing Practices Need
Strengthening, beginning on page 25.
Congressional Research Service
R42875 · VERSION 19 · UPDATED
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