FHA

FHA

Annual Management Report Fiscal Year 2008

U.S. Department of Housing and Urban Development Federal Housing Administration

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

A MESSAGE FROM THE COMMISSIONER

TO THE CONGRESS OF THE UNITED STATES, MEMBERS OF THE HOUSING INDUSTRY, AMERICA'S HOMEOWNERS AND TENANTS, AND THE PUBLIC:

FHA has given millions of families the opportunity to pursue the dream of homeownership. Through education, outreach and a commitment to constantly improve its services, FHA aims to insure safe, affordable mortgages to keep this dream alive for the newest generation of homebuyers.

FHA remains financially sound with a capital ratio in its Mutual Mortgage Insurance (MMI) fund that exceeds the statutory minimum requirement of two percent. This financial capacity, as well as significant management initiatives and improvements, has given FHA the ability to successfully carry out its mission.

Current Issues in the Nation's Housing Market In September 2007, the President announced the formation of FHASecure, a program designed to both promote and facilitate subprime to FHA refinances. Since the President announced the launch of FHASecure, over 368,000 families have refinanced out of a burdensome mortgage into a safe, affordable FHA product. That number should approach 500,000 by the end of calendar year 2008.

FHA's purchase loan business has also been increasing. In the recently concluded Fiscal Year 2008, FHA endorsed 632,000 purchase loans. The overall numbers tell the story of FHA's rise back to its rightful place in the mortgage market ? as a safe, viable option for first-time homebuyers and those with less than perfect credit. In FY 2007, FHA endorsed about 425,000 single-family loans. In FY 2008, FHA endorsed over 1.2 million loans, more than double the previous year. Also, through its loss mitigation programs, FHA helped approximately 101,000 borrowers avoid foreclosure in FY 2008.

FHA Modernization The Housing and Economic Recovery Act of 2008 (HERA), signed into law in July 2008, contained provisions to modernize FHA that we had long sought, such as higher loan limits and a permanent ban on seller-funded down payment loans. Effective January 1, 2009, the permanent loan limit for high-cost areas will be $625,500, enabling areas such as Coastal California, New York City and Washington D.C. to have access to FHA financing.

HERA also mandated that, as of October 1, 2008, no seller-financed down payment loans could be originated. These loans, with nearly three times the default rate of other FHA loans, were having a serious impact on the MMI fund.



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Table of Contents

A Message from the Commissioner

i

Management's Discussion and Analysis

1

Principal Financial Statements and Notes

35

OIG Report

89

Independent Auditor's Report

93

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