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The Federal Housing Administration (FHA) is a component of HUD. Using the Mutual Mortgage Insurance fund (MMI), FHA insures lenders against losses when borrowers default on loans. This program allows lenders to make loans to individuals who might otherwise not be eligible for a conventional mortgage. As of December 2018, FHA insured a portfolio of more than 8 million mortgages with an outstanding principal balance of nearly $1.2 trillion which is approximately 25 percent of all mortgages in the United States.

Lenders submit claims for insurance benefits to FHA to cover losses. For those claims where the lender foreclosed and returned the property to FHA, and FHA then resold the property, FHA recovered only about 56 percent of the funds paid out as of December 2018. FHA is challenged in protecting the MMI. Without sufficient controls, oversight, and effective rules, the fund is at risk of unnecessary losses. Two examples of risks to the fund are:

  • Over 5 years, FHA paid an estimated $2.23 billion in unreasonable and unnecessary holding costs.
  • In 2018, FHA insured reverse mortgages had a negative net worth of $13.63 billion. As the claims on these loans are filed, the MMI fund will have to cover the losses.

FHA is improving on the examples above, but more needs to be done in these and other risk areas.