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Housing agency reports record financial cushion as it braces for market downturn

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The Federal Housing Administration said on Tuesday it was poised to weather a downturn in the mortgage market with its financial reserves at record levels.

Audits announced by the Federal Housing Administration on Tuesday are likely to give authorities room reduce mortgage costs over the next few months as part of an administration push to address housing affordability.

Low interest rates and a shortage of new construction in 2020 and 2021 pushed home prices to record highs. Prices are expected to continue declining from their spring highs over the next few months, but prices remain elevated and Interest rates have more than doubled.

Federal Reserve Chairman Jerome Powell speaks at a news conference at the Federal Reserve Building in Washington, Wednesday, July 27, 2022. (AP Photo/Manuel Barce Seneta/AP Image)

“FHA is in excellent financial shape right now,” FHA Commissioner Julia Gordon said in an interview ahead of the release of the report. “We feel well-prepared to navigate whatever lies ahead.”

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According to the FHA, which caters to first-time homebuyers and low-credit borrowers, insurance fund net worth was $141.7 billion at the end of September, up about $42 billion from a year earlier. The company’s capital reserve ratio, which is required by law to remain above 2%, is now well above that figure at 11%. This ratio measures how much reserves exist as a percentage of loan guarantees after the FHA has covered expected losses.

The FHA does not issue mortgages, but insures lenders against losses. Borrowers can pay for mortgage insurance with a down payment of just 3.5%.

US homes for sale

A house for sale June 23, 2009 in Geneva, Illinois. (Photo by Reuters/Jeff Haynes/Reuters)

It’s unclear how much the FHA will reduce insurance premiums on loans it backs up, but industry groups and consumer advocacy groups have made it a priority. Industry insiders are asking the new borrower to cut back so he can save $50 to $70 a month, The Wall Street Journal reported him in July.

Gordon said the FHA would consider lowering prices once the federal budget for the entire fiscal year beginning October 1 is set. The government is funding him through temporary spending measures until mid-December.

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The potential move has already attracted opposition from Republican lawmakers, who say cutting mortgage costs could make housing out of reach for future FHA buyers.

Pat Toomey, a Pennsylvania senator and senior Republican member of the Senate Banking Committee, said at a time when housing costs are at record highs, lower mortgage insurance premiums will further stimulate demand. “It will drive home prices higher while exposing taxpayers to the risk of bad credit.” said earlier this year.

Senator Pat Toomey

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

for years, big Shortage of entry-level housing Record-low mortgage rates and the Covid-19 pandemic have fueled home-buying demand, fueling city dwellers’ desire to move away from cramped neighborhoods and buy more spacious suburban homes. I was.

Recently, however, the rapid rise in mortgage rates has pushed many out of the market by increasing the cost of borrowing for homebuyers. Home sales in September fell for the eighth straight month.

The National Association of Realtors Home Price Index, which takes into account family income, mortgage interest rate Selling prices for existing single-family homes fell to their lowest level since June in September. June reading was the lowest in decades.

The FHA said the success of its emergency program, designed to help borrowers facing financial hardship, including job losses when the economy shut down in March 2020, has emerged from the pandemic in strong financial shape. I said yes. This allowed borrowers with federally backed mortgages to temporarily skip payments and make up later.

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Over the past year, the number of serious delinquents in its portfolio has nearly halved to less than 5 percent, according to the FHA. At the same time, stress tests showed that the program’s capital buffer would remain at more than three times the statutory level if the market deteriorated, as it did in 2007 when unemployment soared and the mortgage market collapsed.

Jim Parrott, a former housing adviser to the Obama administration and now an industry consultant, said, “There is so much to say about how effective policymakers have been in minimizing the impact of the global pandemic. “They managed to get through what would have been devastating to the FHA Insurance Fund more soundly than living memory.”

—Nicole Friedman contributed to this article.

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