HUD: FHA’S 2021 Annual Report Shows Increase in Capital Reserves; DTI Remains Elevated

The U.S. Department of Housing and Urban Development (HUD) today released its fiscal year (FY) 2021 report to Congress on the financial health of the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund. In addition to its emphasis on delivering relief options to homeowners financially impacted by the COVID-19 pandemic, FHA continued to deliver on its mission of enabling homeownership for first-time and low- and moderate-income, and households of color.

The MMI Fund supports FHA’s Single Family mortgage insurance programs, including all forward mortgage purchase and refinance transactions, as well as mortgages insured under the Home Equity Conversion Mortgage (HECM) reverse mortgage program. The report illustrates that the MMI Fund increased its overall Capital Ratio, ending the fiscal year at 8.03 percent, an increase of 1.93 percentage points over the previous fiscal year. For the first time since 2015, the HECM reverse mortgage program has a strong positive ratio, primarily due to strong national home price appreciation. As the recovery from the pandemic continues, the Fund remains well positioned to withstand future economic events and endure the outcomes from the pandemic induced delinquencies that remain in forbearance or are seriously delinquent.

“The strength of the fund is a promising sign and solidifies the important role FHA fulfills in making homeownership a reality for first-time homebuyers and those with lower incomes.” said U.S. Department of Housing and Urban Development Secretary Marcia L. Fudge. “This year, our Administration took unprecedented steps to deliver relief to those devastated by the pandemic. Managing the strong fiscal health and performance of the FHA program is a top priority, and I am encouraged to see the MMI Fund remain resilient through the events of the past year. Looking ahead, we will ensure FHA is well positioned to provide broad and equitable access to homeownership, especially for those who have been historically underserved in the mortgage market.”

Exhibit III-8 above illustrates the distribution of credit scores for borrowers obtaining FHA
endorsements. The share of endorsements with credit scores between 620 and 679 increased
slightly in from 53.13 percent in FY 2020 to 57.16 percent in FY 2021. The share of endorsements
on mortgages with credit scores of 720 or higher decreased from 14.69 percent in FY 2020 to
13.33 percent in FY 2021.

The average Debt-to-Income (DTI) ratio for borrowers with FHA-insured purchase mortgages
increased slightly, from 43.08 percent in FY 2020 to 43.18 percent in FY 2021, as illustrated in
Exhibit III-9 above. The percentage of borrowers with DTI ratios of 50 percent or greater in FY
2021 was at 23.71 percent, a decline from 24.20 percent in FY 2020 and a sign of slightly
improving economic circumstances for FHA’s traditional borrowers.