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Responses to Senator Allard's Questions about the 1999 Actuarial Review of the Federal Housing Administration's Mutual Mortgage Insurance Fund 1 (October 2000)

handle is hein.congrec/cbo9000 and id is 1 raw text is: October 23, 2000 RESPONSES TO SENATOR ALLARD'S QUESTIONS ABOUT THE 1999 ACTUARIAL REVIEW OF THE FEDERAL HOUSING ADMINISTRATION'S MUTUAL MORTGAGE INSURANCE FUND 1. Following the release of the 1999 Actuarial Review of the Mutual Mortgage Insurance Fund (MMIF), HUD stated that the MMIF was projected to have a $5-billion surplus. What does this $5 billion represent and how was it calculated? The $5 billion amount referred to by the Department of Housing and Urban Development (HUD) is the difference between estimates of the MMIF's economic net worth at the end of fiscal year 1998 and at the end of fiscal year 1999. That difference reflects an additional year of loan guarantee activity, as well as the fact that the two estimates were done by different contractors, at different times, using different economic models and assumptions. The Cranston-Gonzalez National Affordable Housing Act (NAHA) requires the Federal Housing Administration's (FHA's) MMIF to undergo an independent actuarial review annually. The independent reviewers use their own models to evaluate the financial soundness of the MMIF. The results of such a review are only preliminary because the data available at the time do not include actual results for the full fiscal year and because NAHA also requires that the FHA undergo a financial audit after the fiscal year is over. The 1999 actuarial review, prepared by Deloitte & Touche, estimates that the MMIF had an economic net worth of $16.6 billion at the end of September 1999. The fund's economic net worth consists of the assets credited to the fund, mostly in the form of Treasury securities but also including the estimated discounted present value of future cash flows, less the fund's liabilities. Cash receipts to the MMIF come mostly from premiums charged to home buyers and receipts associated with the sale of foreclosed property. Outlays are primarily for claims payments. FHA provides mostly 30-year loan guarantees, so the estimated cash flows for a given group of loan guarantees are projected well into the future. Compared to the estimated economic net worth of $11.4 billion at the end of September 1998 (as estimated by Price Waterhouse Coopers), this new amount represents a $5.3 billion increase in the fund's estimated value. This amount,

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