FHA Watch, October 2012

Article Highlights

  • FHA's capital position continues to plunge.

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  • 77,000 new FHA delinquencies in August.

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  • 17.3% of all FHA loans are delinquent.

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FHA Watch, No. 10, October 2012

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This Issue’s Highlight

Overall Delinquency Rate Surges in September; Denial Dial Plunges to Record Low

In September, 17.3 percent of all Federal Housing Administration (FHA) loans were delinquent, up from 16.35 percent in August 2012 and 16.78 percent in September 2011. Total delinquencies increased by 77,000 over August, the largest one-month increase since FHA Watch began tracking monthly delinquencies in September 2011.

The September estimate of the FHA’s generally accepted accounting principles (GAAP) net worth is –$28.3 billion, down from –$16.3 billion and –$26.3 billion in September 2011 and August 2012, respectively. The capital shortfall stands at $48 billion (using a 2 percent capital ratio) and $67 billion (using a 4 percent capital ratio). The Denial Dial was reset to −2.61 percent, eclipsing the previous low set in August 2012. The FHA’s estimated net worth on a GAAP basis has declined by $12 billion since the end of FY 2011.

The Denial Dial’s decline is largely the result of a surge in 60-day-plus delinquencies, a growing liability for upfront premiums and continued monthly losses in excess of monthly cash flow.

This Month’s Features

Homing in on the FHA’s Problems
Do the FHA’s Flawed Pricing and Underwriting Policies Finance Failure?

Spotlight on Insolvency
FHA’s Estimated Net Worth Declines Sharply to –$28.3 Billion, with a Capital Shortfall of $48–67 Billion

Spotlight on Delinquency
Overall and Short-Term Delinquency Rates Soar

Spotlight on Best Price Execution
Ginnie Brands Continue Their Pricing Dominance

The Road Map to FHA Reform
Specific Steps to Reform and the Status of Each

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About the Author

 

Edward J.
Pinto
  • American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.


    An executive vice president and chief credit officer for Fannie Mae until the late 1980s, Pinto has done groundbreaking research on the role of federal housing policy in the 2008 mortgage and financial crisis. Pinto’s work on the Government Mortgage Complex includes seminal research papers submitted to the Financial Crisis Inquiry Commission: “Government Housing Policies in the Lead-up to the Financial Crisis” and “Triggers of the Financial Crisis.” In December 2012, he completed a study of 2.4 million Federal Housing Administration (FHA)–insured loans and found that FHA policies have resulted in a high proportion of working-class families losing their homes.

    Pinto has a J.D. from Indiana University Maurer School of Law and a B.A. from the University of Illinois at Urbana-Champaign.

  • Phone: 240-423-2848
    Email: edward.pinto@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: 202-419-5212
    Email: emily.rapp@aei.org

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