At the request of House FinServ subcommittee chairmen Duffy (R-WI) and Rep. Luetkemeyer (R-MO), GAO released a report yesterday that examined the FHA MMI Fund’s actuarial reviews, capital requirements, and stress tests and found them generally falling short of the standards set for major financial institutions.  GAO also finds that the minimum 2% capital ratio is not informative as to the economic health of the MMI Fund given the absence of economic conditions that the Fund would be expected to withstand.  Most importantly, GAO specifically requests Congress to amend the National Housing Act to specify the economic conditions that the MMI Fund should be expected to withstand without substantial risk of drawing on its indefinite budget authority and requiring FHA to specify and comply with the new capital ratio.  Given that Duffy is working on a housing-finance bill and Hensarling (R-TX) wants FHA addressed in it, these findings will drive debate over FHA capitalization in the pending reform package.

The full report is available to subscription clients. To find out how you can sign up for the service, click here.