The housing agency reports a record fiscal cushion as it braces for the market downturn

A federal housing agency said Tuesday that its financial reserves have reached record highs and that it is well positioned to weather a downturn in the mortgage market.

The scrutiny released Tuesday by the Federal Housing Administration likely gives officials room reduce mortgage costs in the coming months as part of an administration push to address housing affordability.

Low interest rates in 2020 and 2021 and a lack of new housing have pushed home prices to record highs. Although prices are expected to fall further from their spring highs in the coming months, they remain high and Interest rates have more than doubled.

US Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27, 2022. The Federal Reserve has raised the interest rate, or base cost of borrowing, in the eco-space (AP Photo/Manuel Balce Ceneta/AP Images)

“The FHA is in excellent financial shape right now,” said Julia Gordon, the agency’s commissioner, in an interview ahead of the report’s release. “We feel well prepared for whatever lies ahead.”

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The FHA, which caters to first-time homebuyers and borrowers with lower credit ratings, said its insurance fund’s net assets were $141.7 billion at the end of September, up about $42 billion from a year earlier. The statutory capital reserve ratio of over 2% is now significantly higher at 11%. The ratio measures how much reserves the FHA would have available relative to its loan guarantees after covering expected losses.

The FHA does not make mortgages, but insures lenders against losses. Borrowers can pay for mortgage insurance with down payments as low as 3.5%.

US house for sale

A house is for sale on June 23, 2009 in Geneva, Illinois. (REUTERS/Jeff Haynes/Reuters Photos)

It’s unclear how much the FHA would cut premiums on the loans they insure, but a cut is a priority for industry groups and consumer advocates. Industry officials are calling for cuts that would save new borrowers $50 to $70 a month, the Wall Street Journal reported in July.

Ms Gordon said the FHA will consider reducing rates once a federal budget is finalized for the full fiscal year, which began Oct. 1. The government is financing an emergency solution for spending until mid-December.

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The potential move has already drawn opposition from Republican lawmakers, who say any cuts in mortgage costs could backfire in a way that could put homes out of reach for prospective FHA buyers.

“At a time of record high housing costs, cuts in mortgage insurance premiums would further spur demand and raise home prices while taxpayers are misled by bad credit risk,” Pennsylvania Sen. Pat Toomey, senior GOP member of the Senate Banking Committee, said earlier this year.

Senator Pat Toomey

WASHINGTON, DC – MAY 19: Sen. Pat Toomey (R-PA) speaks at the Senate Banking, Housing and Urban Affairs Hearings at the US Chapter on May 19, 2022 in Washington, DC. (Photo by Tasos Katopodis/Getty Images/Getty Images)

A big one for years Lack of entry-level apartments was exacerbated by robust homebuying demand due to record-low mortgage rates and the Covid-19 pandemic, which fueled a desire from city dwellers to escape cramped living spaces and find more spacious suburban homes.

More recently, however, rapidly rising mortgage rates have pushed up borrowing costs for prospective homebuyers and pushed many out of the market. Home sales fell for the eighth straight month in September.

The National Association of Realtors’ Housing Affordability Index, which takes into account family income, mortgage rates and selling prices for existing single-family homes fell to their lowest level since June in September. The June reading was the lowest in decades.

The FHA said its program is due to the success of emergency programs designed to help borrowers who have faced economic hardships, such as B. a job loss as the economy shut down in March 2020, emerging from the pandemic in strong financial shape is the forbearance that has allowed borrowers with government-backed mortgages to temporarily skip payments and make up for them later.

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In the past fiscal year, the FHA roughly halved the number of seriously defaulting borrowers in its portfolio to less than 5%, the agency said. At the same time, stress tests showed that the program’s capital buffers would remain more than three times above their legal levels should markets sour like they did in 2007, when unemployment rose and the mortgage market tumbled.

“It says quite a lot about how effectively policymakers have been minimizing the impact of a global pandemic,” said Jim Parrott, a former Obama administration housing adviser who now serves as an industry adviser. “You’ve managed to weather a devastating blow to the FHA insurance fund and do it healthier than in living memory.”

—Nicole Friedman contributed to this article.

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