Why California will shape the future of the HECM in FHA’s Insurance Fund
A few things are undeniable and established truths; one being the valuation of FHA’s Mutual Mortgage Insurance Fund is extremely sensitive to even the most modest changes in home price appreciation. Don’t blame the messenger. Blame the math. The mathematical assumptions where a mere 1 drop in home appreciation reduces FHA’s insurances fund’s capitalization ratio by 1.3%. Applying a hypothetical stress test FHA’s report to Congress reveals market conditions similar to 2007 would completely erase the Mutual Mortgage Insurance Fund’s positive six-percent capitalization ratio down to a negative .63 percent. Knowing this it’s easier to understand the agency’s reluctance to grant repeated requests from housing lobbyists to further reduce premiums. It’s clear that a higher capitalization ratio is needed to weather the storms of economic uncertainty.
