Although public and political attention has focused on HUD’s conclusion that the FHA MMI Fund’s capital level has now climbed seven basis points above the 2% minimum, it’s critical to note that the capital ratio is only 1.63% excluding HECMs. As a result, the $100 billion HECM book twirls the $1 trillion traditional FHA book around to achieve a 2% capital ratio for the entire MMI Fund based on HUD’s interest-rate scenarios and a lot of crossed fingers at FHA’s actuary, which is well aware of how risky FHA’s MMI book may get if it executes its planned slide down into higher-risk credit scores.
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