Homeownership

Actuarial Soundness of FHA's Single-Family Mortgage Insurance Program Gao ID: T-RCED-93-64 July 27, 1993

GAO testified that the Mutual Mortgage Insurance Fund was not actuarially sound as of the end of fiscal year 1991, but that its financial health may have improved in fiscal year 1992. GAO estimates that the fund had an economic net worth of about -$1.4 billion at the end of fiscal year 1991 and a resulting capital reserve ratio of -0.46 percent of the amortized insurance-in-force, valued at $302 billion at that time. Even if the Federal Housing Administration (FHA), which runs the fund, were to stop insuring new loans after September 30, 1991, the fund's reserves would not cover the federal government's potential liability over the life of the loans outstanding. The actual economic net worth and capital reserve ratios of the fund--and the validity of GAO's estimates--will depend on a number of future economic factors, including the rate of appreciation in house prices over the life of the FHA mortgages of up to 30 years. This factor is significant because, as house prices rise, borrowers' equity increases and the probability of defaults and foreclosures drops. If house prices increase more or less rapidly than GAO assumed, the fund's economic net worth will be higher or lower than GAO anticipated.



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