Mortgage Financing

The Federal Housing Administration's (FHA) Mutual Mortgage Insurance Fund made significant progress during fiscal year 1993 toward achieving the capital reserve needed for actuarial soundness under the law. Clearly, legislative and other program changes have helped restore the Fund's financial health and reverse the trend of the late 1980s and early 1990s toward insolvency. Fiscal year 1993 was, however, an unusually good year for FHA because actual economic conditions and forecasts of future economic conditions were favorable. Nevertheless, forecasting economic net worth and resulting capital ratios to determine whether FHA will have the funds needed to cover its losses over the life of 30-year loans it has insured is uncertain. Loan performance, and therefore economic net worth and capital ratios, will depend on several economic and other factors, such as the rate of appreciation in house prices and premiums charged FHA borrowers. Loan performance will also be affected by the demand for FHA-insured loans, which partly depends on alternatives available from private mortgage insurers. The desire to assist home buyers must be carefully weighed against the government's potential financial risk and expectations for the housing market's future performance.