In 1934, the National Housing Act passed by Congress and signed into law included a provision that allowed for the creation of a new mortgage fund. Called the Mutual Mortgage Insurance Fund (MMI), it was created to provide insurance to FHA-back single-family mortgages. The Fund is paid for by the home buyers, via a pre-determined fee structure, and used to cover losses if the homeowner is foreclosed on. There has been a considerable amount concern that the current housing crisis would bankrupt the Fund because so many FHA-mortgaged homes have gone into foreclosure.
This week, the Department of Housing and Urban Development (HUD) released its annual report on the Federal Housing Administration (FHA) Mutual Mortgage Insurance Fund (MMI). Despite stubbornly low housing prices and stubbornly high rates of foreclosure, the MMI looks to be in fairly good shape.
Because the MMI is used to back FHA mortgages, it took a breitling superocean
significant hit when the housing bubble burst. When a homeowner defaults on an FHA mortgage, the MMI fund is used to repay the lender. FHA mortgagors are considered higher-risk because their down payments are typically lower as are their credit scores.
Home buyers who use FHA mortgages pay into the fund via a one-time fee equivalent to 1.5 percent of the loan. Additionally, a fee of.5 percent of the loan amount is assessed every year until there is a 22 percent equity in the home. In other words, if a home buyer gets a $200,000 mortgage for a home valued at $225,000, he pays a $3,000 MMI fee at closing, and an annual fee of $1,000 until he has amassed $49,500 of equity.
A congressional mandate requires the FHA MMI to keep capital reserves equivalent to its estimated losses over the next 30 years, plus an additional 2 percent. Though the FHA has managed to keep enough cash on hand to cover expected losses, it has less breitling chronomat
than an additional one percent above that projected dollar amount. However, an increase in annual premiums, combined with other mechanisms aimed at improving the MMI's financial stability now has it on course toward profitability.
In the last year, the FHA has insured over $200 billion in mortgages for single-family homes. Its portfolio now exceeds $1 trillion. In addition, the FHA has helped nearly 150,000 distressed homeowners reduce their mortgage payments and avoid foreclosure. This most recent report estimates that MMI will reach its two percent surplus requirement by 2014 - significantly sooner than was previously expected.
Keeping the MMI fund financially viable ensures that people with good credit who are economically stable have the opportunity to pursue homeownership, even if they don't have a 20 percent down payment.
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