FHA Report Finds Mortgage Insurance Fund Improved Substantially; Concerns Remain about DPA

The economic value of the Federal Housing Administration’s Mutual Mortgage Insurance Fund (MMIF) showed strong growth in FY 2019, according to FHA’s 2019 Report to Congress.

MMIF’s economic value rose to nearly $62.38 billion in FY 2019, up more than $27 billion from the previous fiscal year. Its capital ratio for FY 2019 was 4.84 percent, an increase of more than two percent from FY 2018 and the highest it’s been since FY 2007. This is the fifth consecutive year the MMIF’s capital ratio exceeded the two percent minimum.

Similar to recent years, the report suggests the biggest threat to MMIF’s economic health is potential losses realized through its Home Equity Conversion Mortgage Loan (HECM) program, which insures reverse mortgages. In FY 2019, FHA’s HECM portfolio had a capital ratio of negative 9.22 percent and a negative economic net worth of $5.92 billion, both significant improvements over FY 2018. In contrast, FHA’s single-family purchase mortgage portfolio has a capital ratio of 5.44 percent and a positive economic value of $66.6 billion (a 42 percent increase over FY 2018).

FHA endorsed just over 990,000 loans in FY 2019, 743,820 of which financed home purchases (the rest were refinancings). Three-quarters of FHA’s home purchase loans went to first-time home buyers. Around a third went to minority borrowers. FY 2019 also saw a continuation of the recent trend in declining credit scores for FHA borrowers. The average FHA borrower’s credit score in FY 2019 dropped from 670 to 666.

According to data from NCSHA’s Factbook, around half of HFA single-family program loans are insured by FHA each year.

DPA and Other Risk Factors

Despite the MMIF’s substantial improvement, FHA reports several emerging trends with its portfolio that could pose threats to the fund’s health moving forward. The rate of early payment defaults (where the borrower becomes 90 days or more delinquent on their mortgage within the first six payments) has more then doubled in the last three fiscal years. Further, the projected lifetime claims rate, which measures the percentage of the unpaid principal balance FHA expects to pay insurance claims on for a loan originated in a given year, increased for the sixth consecutive fiscal year and is at the highest level since FY 2009.

One of the risk factors cited in the report is the increasing share of FHA home purchase loans in which the borrower receives some form of down payment assistance. Such loans accounted for almost 40 percent of all home purchase loans insured by FHA in FY 2019, up from 29 percent in FY 2011. This includes 12.91 percent of borrowers who received down payment assistance through government entities, such as HFAs.

As it did last year, the report includes data showing that loans for borrowers who receive down payment assistance generally have higher default rates and that borrowers who receive down payment assistance through a government program have an even higher rate of default than borrowers who receive down payment assistance from other sources. Unlike last year’s report, FHA does not mention any potential policy changes pertaining to down payment assistance.

Other risk factors highlighted in the report include an increasing share of loans with high debt-to-income ratios, loans to borrowers with lower credit scores, loans to borrowers without adequate reserves, and loans originated by non-depository lenders. FHA stresses in the report that none of these factors are, on their own, good predictors a loan will not perform. However, the agency has observed an increase in the number of loans with multiple of these risk attributes.

CDFA 2018 Annual Volume Cap Report

"Every year since 2005, the Council of Development Finance Agencies (CDFA) has collected
and analyzed national volume cap data as reported by managing state agencies. The CDFA
Volume Cap Report represents a vital service to the development finance industry and
CDFA members, as this information is critical to understanding and evaluating the
efficiencies, effectiveness, costs, and benefits of private activity bonds. The results of our
2018 research are contained in the following report.
To compile the data, CDFA surveyed and interviewed representatives from each state’s
volume cap allocating and issuing authorities. The data represents the best available
figures as reported by each state to CDFA.

As a leader in the development finance industry, CDFA serves as the principal source for
private activity bond volume cap data, reporting, and trends. Through CDFA’s online
National Volume Cap Map, comprehensive volume cap data can be found online at
www.cdfa.net. Users can search, sort, and compare data from all 50 states and the District
of Columbia looking back to 2005." -CDFA

Attached is the 2018 Annual Volume Cap Report

CDFA 2018 Volume Cap Report.pdf

Studies Find Short-Term Financial Assistance Promotes Housing Stability, Reduces Cost

Since its inception, the Opportunity Starts at Home campaign has urged Congress to create a "National Housing Stabilization Fund" to provide short-term financial assistance and stability services to help poor households overcome an economic shock that threatens their housing stability.
Most families in poverty who rent spend at least half of their incomes on housing, leaving virtually no margin for an unexpected expense. Broken-down cars, unreimbursed medical bills, or temporary declines of income can quickly send vulnerable households down the spiral of housing instability, eviction, and even homelessness. The primary purpose of a Stabilization Fund would be to cover the temporary gaps between income and rental costs during a financial crisis. The secondary purpose would be to provide stability services, such as counselors and case management. When combined, such short-term housing assistance and support services can significantly reduce evictions and homelessness. Some states and localities have these crisis assistance programs, but the need far exceeds the program resources available.
Although there is still more to learn about how to deliver emergency assistance most effectively at a national scale, families and individuals who have participated in similar types of programs often have permanent housing by the end of the program. Studies also find that providing a small amount of preventative, short-term assistance is more cost-effective than the long-term social and economic consequences of housing instability, eviction, and homelessness.
A review of research related to such programs:

  • A review of a recession-era program and its short-term assistance and prevention services components found 71.6% of participants who were either imminently losing their housing or unstably housed upon entry into the program exited to stable housing.
  • A review of the Supportive Services for Veteran Families’ (SSVF) prevention program, which provides short-term financial assistance and other supports to veterans at risk of homelessness, found 91% of participants maintained their housing or exited to permanent housing.
  • A rigorous evaluation of New York City’s Homebase Community Prevention program, which includes short-term assistance and services, found that families at-risk of homelessness who participated in the program spent 22 fewer nights in the shelter system. These families were also less likely to spend at least one night in shelters during the 27-month follow-up period.
  • Researchers examined the effectiveness of temporary financial assistance by using data from the Homelessness Prevention Call Center (HPCC) in Chicago, which processes about 75,000 calls annually. Chicago residents at-risk of becoming homeless would call 311 to request temporary financial assistance for rent, security deposits, or utility bills. The researchers compared households that called when funds were available with those who called when funds were not available. They found that those calling when funding was available were 76% less likely to enter a homeless shelter. The researchers also presented evidence that the program’s cost is lower than the homelessness-related costs the program likely averted, making the program a cost-effective solution.

FHFA Reports GSEs Met 2018 Affordable Housing Goals and Duty-to-Serve Requirements

According to a report released this week by the Federal Housing Finance Agency (FHFA), the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in 2018 met all their affordable housing goals and their obligations under the Enterprise Duty-to-Serve Rule. The report, which FHFA submits to Congress each year, summarizes the GSEs’ 2018 affordable housing activities.

Affordable Housing Goals Achieved; Fannie Surpasses Single-Family Market Benchmark

The bulk of the report focuses on Fannie Mae and Freddie Mac’s 2018 performance under their 2018–2020 Affordable Housing Goals which establish minimum levels of support for affordable single-family and multifamily housing lending that both GSEs are expected to meet each year.

FHFA uses a dual approach to measure the GSEs’ compliance with their single-family goals and subgoals. Under this approach, FHFA requires each GSE to ensure a certain percentage (24 percent for 2018) of the loans it purchases each year be made to low-income consumers (those making 80 percent or less of area median income, or AMI). The GSEs are expected to meet this benchmark goal unless the share of home loans in the overall lending market made to low-income consumers falls below the benchmark. In that case, the GSEs’ level of support for low-income lending simply has to match that of the overall market for them to be considered compliant. FHFA takes an identical approach to measuring compliance with its single-family subgoals for loans to very low-income consumers (those at 50 percent of AMI or below), loans used to purchase homes in low-income areas, and refinance loans for low-income homeowners.

For the second year in a row, Fannie Mae achieved all its single-family goals and subgoals in 2018. Not only did Fannie Mae meet all its goals, it also exceeded the overall market for all subgoals despite the market levels all being higher than the benchmarks (see Table 1 from FHFA). Of Fannie Mae’s loan purchases, 28.2 percent were loans to low-income consumers, above the 24 percent benchmark goal and the 25.5 percent level for the market as whole.

Table 1
Freddie Mac also reached all of its single-family housing goals in 2018, after a mixed performance in 2017. Its loan purchase shares did fall below the market as a whole for several subgoals (see Table 2 from FHFA).
Table 2
As they have in the past three years, the GSEs exceeded their multifamily goals for 2018 (see Tables 3 and 4 from FHFA). In addition, both firms also increased their production in each goal category from 2017. The goals required them to finance the development of at least 315,000 units affordable to low-income renters earning 80 percent of AMI or below; at least 60,000 units affordable to very low-income renters earning 50 percent of AMI or below; and at least 10,000 units located in small multifamily properties that have between 5 and 50 units.
Table 3
Table 4

Duty to Serve Continues to Foster Housing Credit Investments

FHFA’s report also says the GSEs met their Duty-to-Serve obligations in the three underserved markets the rule targets: manufactured housing, affordable housing preservation, and rural housing. The report concludes that the GSEs’ efforts to promote residential economic diversity, which FHFA included as an additional target when crafting the Duty-to-Serve Rule, were largely ineffective. FHFA’s report cites Fannie Mae and Freddie Mac’s Housing Credit equity investments as supporting their efforts to finance affordable housing in rural areas. The GSEs are able to receive Duty-to-Serve credit for such investments.

Overall, Fannie Mae committed $118 million in Housing Credit equity to rural areas in 2018, supporting 42 properties, 13 of which were in high-needs rural regions such as Middle Appalachia or the Lower Mississippi Delta, which the Duty-to-Serve rule targets. The firm also made four Housing Credit investments to support housing for Native Americans living on tribal land, which FHFA has identified as a high-needs rural population in the Duty-to-Serve Rule. Freddie Mac, meanwhile, committed $73 million in Housing Credit investments to rural areas, supporting 17 properties, 5 of which are in high-needs rural regions.

The report also describes the allocations made by each GSE to the Housing Trust Fund and Capital Magnet Fund, breaks down Fannie Mae and Freddie Mac’s single-family loans by various underwriting and borrower characteristics, discusses the GSEs’ multifamily activities, and summarizes FHFA’s efforts to survey the mortgage markets and release some of the GSEs’ loan-level data to the public.

Affordable Housing Credit Improvement Act Continues to Gain Support, Receives Endorsement from New Democrat Coalition

In the just over four months since the AHCIA was introduced, almost a third of lawmakers in the House – 137 total cosponsors – have signed on to the bill, including 69 percent of the House Ways and Means Committee. The identical Senate bill currently has 19 cosponsors, including nine Republicans, nine Democrats, and one Independent, with 43 percent of the Senate Finance Committee signed on in support. Most recently, Senator Kevin Cramer (R-ND) joined as a cosponsor. Click here to view the most recent list of AHCIA cosponsors.

On October 18, the New Democrat Coalition (NDC) endorsed four pieces of legislation including the Affordable Housing Credit Improvement Act (AHCIA), which has continued to gain bipartisan support in both the Senate and the House (S.1703 & H.R. 3077). The NDC is comprised of 104 lawmakers who are committed to “pro-economic growth, pro-innovation, and fiscally responsible” policies. The NDC’s endorsements are intended to bolster support for solutions that address the shortage in the supply of affordable housing across the country. In addition to endorsing the AHCIA, the NDC also endorsed three other pieces of housing-related legislation including the Sustainable Communities Act (H.R. 927) introduced by Rep. Norma Torres (D-CA-35), the Build More Housing Near Transit Act (H.R. 4307) introduced by Rep. Scott Peters (D-CA-52), and the Yes in My Backyard Act (H.R. 4351) introduced by Rep. Denny Heck (D-WA-10). To read more about the NDC’s endorsement of the AHCIA, read its press release here.

New FHFA Strategic Plan and Scorecard Lay Path for GSEs to Exit Conservatorship, Support Administration Reform Plan

The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will be expected to prepare for a responsible end to their conservatorships and to help to implement the Trump Administration’s housing finance reform proposals under the Federal Housing Finance Agency’s (FHFA’s) newly-released Strategic Plan for 2019 and Enterprise Scorecard for 2020. The new Strategic Plan, released this morning, outlines FHFA’s goals and priorities for managing the conservatorships of Fannie Mae and Freddie Mac. The Scorecard, also published this morning, describes the steps FHFA expects each of the firms to undertake next year to fulfill the Strategic Plan.

This is the first Strategic Plan and Scorecard for the GSEs that FHFA has released under Director Mark Calabria. The new Strategic Plan is a notable departure from those released when the agency was headed by Mel Watt. Specifically, the new plan includes what FHFA calls “a new vision for reform” that will focus on three broad objectives for the GSEs:

  1. Foster competitive, liquid, efficient, and resilient (which the Report and Scorecard refer to as “CLEAR”) national housing finance markets that support sustainable homeownership and affordable rental housing
  2. Operate in a safe and sound manner appropriate for entities in conservatorship
  3. Prepare for eventual exit from conservatorship

The Scorecard includes specific actions the GSEs must take to comply with these objectives. Calabria elaborated on the plan during a speech given this morning at the Mortgage Bankers Association’s annual conference.

FHFA also declares in the Strategic Plan that it supports the goals of the Trump Administration’s recently released housing finance reform plans and that it will work with Treasury and HUD to pursue further reforms. The agency also pledges to pursue administrative and legislative reforms of the housing finance system while simultaneously preparing the GSEs to leave conservatorship. The Scorecard directs the GSEs to help implement the administration’s plans if directed to do so by FHFA.

With regard to affordable housing, the Scorecard directs the GSEs to continue fulfilling their obligations through the Affordable Housing Goals and Duty-to-Serve Underserved Markets rule but emphasizes that such initiatives should be carried out in a sustainable manner. The GSEs are also mandated to continue their efforts to explore and utilize alternative credit scoring models and increase access to credit for non-English-speaking borrowers.

Senate Passes Spending Package for Affordable Housing

Senate Passes Bill to Provide Additional Investments in Affordable Housing

Thanks to your advocacy, the Senate passed by a vote of 84-9 a four-bill spending package for fiscal year (FY) 2020 that includes additional funding for affordable housing and community development at HUD and USDA, as well as several key amendments.

Background

The Senate spending bill provides modest funding increases for affordable housing programs, clearly rejecting President Trump’s call for deep cuts to and even the elimination of affordable housing investments. Overall, the bill provides HUD programs with more than $11.9 billion above the president’s FY20 request and $2.3 billion above FY19 enacted levels – an amount likely sufficient to renew all existing rental assistance contracts and to provide level funding or modest increases to most other programs. For more information, see NLIHC’s analysis of the Senate bill and updated budget chart.

The bill includes a package of amendments with bipartisan support, including several that support affordable housing in rural areas and manufactured home communities. An amendment offered by Senator Tina Smith (D-MN) would allow USDA to extend rental assistance agreements for projects financed by existing Section 514 or 515 loans for up to 20 years, ensuring residents in these properties can remain affordably housed for a longer period of time.

The package includes another amendment from Senator Smith that prioritizes maintenance of USDA rural housing properties through capital repairs, staffing provisions, and enforcement. The Senate also agreed to Senator Jeanne Shaheen’s (D-NH) amendment calling on Congress to create a tax incentive to encourage owners of manufactured home communities to transfer properties to nonprofit organizations and residents to help preserve the homes’ affordability.

The Senate bill does not include important provisions approved by the House that would stop harmful proposals by the Trump administration. The House bill contains language that would prevent HUD from implementing its harmful “mixed-status” immigrant-family rule and would stop HUD from rolling back protections for LGBTQ people, including the agency’s Equal Access rule ensuring transgender people have access to emergency shelters and other facilities that match their gender identity.

Passage of the Senate spending bill is an important step, but the House and Senate still need to reach an agreement on a final FY20 spending bill to ensure continued funding for federal programs and avoid a government shutdown. The government is currently operating under a stop-gap continuing resolution through November 21.

The Affordable Housing Credit Improvement Act Continues to Gain Strong Bipartisan Support

As of this week, more than one-fourth of the Senate and one-third of the House have cosponsored the Affordable Housing Credit Improvement Act (AHCIA)!

Of the now 27 Senate cosponsors, the most recent additions include Senators Lindsey Graham (R-SC), Chris Coons (D-DE), Jeanne Shaheen (D-NH), Tina Smith (D-MN), Amy Klobuchar (D-MN), Tim Kaine (D-VA), Chris Van Hollen (D-MD), and Krysten Sinema (D-AZ).

ACTION and our partners have also secured 153 Representatives in the less than five months since AHCIA’s introduction. The most recent House cosponsors include Representatives Kendra Horn (D-OK-5), Peter Visclosky (D-IN-1), Gregory Meeks (D-NY-5), John Joyce (R-PA-13), Doug LaMalfa (R-CA-1), Debbie Mucarsel-Powell (D-FL-26), Gilbert Ray Cisneros (D-CA-39), Anna Eshoo (D-CA-18), David Trone (D-MD-6), Stephen Lynch (D-MA-8), Bill Foster (D-IL-11), Albio Sires (D-NJ-8), Conor Lamb (D-PA-17), Joseph Morelle (D-NY-25), Paul Tonko (D-NY-20), and Madeleine Dean (D-PA-4).

ACTION applauds these members for their leadership on providing more affordable housing to communities nationwide, and thanks our members and partners for their advocacy!

Let’s keep the momentum going and ensure that the AHCIA advances as part of any moving tax legislation. ACTION encourages advocates to contact members of Congress who have cosponsored and ask that they tell their leadership, including tax Committee leadership, that advancing the AHCIA is a priority. In addition, we encourage ACTION advocates to ask their members of Congress who have yet to sign-on to cosponsor the legislation today. Check out ACTION’s Advocacy Toolkit to help you as you prepare for your advocacy.

Thank you for your support!