Challenge: The Federal Housing Administration (FHA) is a government agency providing mortgage insurance coverage to single-family homebuyers through the Mutual Mortgage Insurance (MMI) Fund, financed through the insurance premiums FHA collects on its insured loans. Effective in 1990, the Cranston-Gonzalez National Affordable Housing Act (NAHA) required that the MMI Fund be actuarially sound by maintaining a minimum capital ratio of two percent to sufficiently withstand a moderate economic downturn. To ensure adherence to the necessary minimum capital ratio requirement, NAHA requires an annual independent actuarial review. FHA retained Summit and Milliman, Inc. to perform this review.
Solution: Summit’s team of actuaries, economists, and mortgage insurance experts produces an independent actuarial review and economic valuation of the MMI Fund for Forward Mortgages and Home Equity Conversion Mortgages (HECMs). Summit models credit risk, cash flow, and discounting frameworks for FHA-insured reverse mortgages using a blend of econometric and actuarial techniques. Additionally, we are forecasting total market and FHA-insured mortgage dollar volumes for Forward Mortgages and HECMs.
The team produced reports to summarize FY 2013 actuarial review findings derived from cash flow models developed to project future portfolio value, integrating potential effects of policy changes. You can view the Summit Team’s Forward report and HECM report online.