Mortgage Financing

This testimony discusses the results of GAO's analysis of the financial health of the Federal Housing Administration's Mutual Mortgage Insurance Fund. GAO estimates that the Fund had an economic value of about $15.8 billion at the end of fiscal year 1999. This estimate implies a capital ratio of 3.20 percent, which is higher than the two-percent capital ratio mandated by law. Given the economic value of the Fund and the state of the economy at the end of fiscal year 1999, a two-percent capital ratio appears sufficient to withstand moderately severe economic downturns that could lead to worse-than-expected loan performance. Some more severe downturns that GAO analyzed also did not cause the estimated capital ratio to decline by as much as two percentage points. Because of the nature of such analysis, GAO urges caution in concluding that the estimated value of the Fund today implies that the Fund would necessarily withstand any particular economic scenario under all circumstances. Congress and the Secretary of Housing and Urban Development have taken and could take several steps to influence the economic value of the Fund. Actions that influence the Fund's reserve levels will also affect the federal budget. In short, any proposal that seeks to use reserves, if not accompanied by a reduction in other spending or an increase in receipts, will result in a decline in the federal budget surplus.