The MMIF is very important for traditional “forward” FHA and HECM lending. Frankly, it makes it possible for lenders to offer traditional FHA loans (which have less stringent lending requirements than conventional loans) and HECMs at rates and terms that would be less favorable or impossible without the MMIF. In short, lenders are more willing to make “riskier” loans at lower rates because they are backstopped by the MMIF.
How the Mutual Mortgage Insurance Fund is funded
Borrowers of both traditional FHA loans and HECM reverse mortgages pay a one-time mortgage insurance premium into the fund at loan closing (this fee is called IMIP in the case of the HECM). This fee is either paid out of pocket or rolled into the starting loan amount.
Borrowers also pay ongoing mortgage insurance premiums (called annual MIP in the case of the HECM). Traditional FHA borrowers pay the annual premiums as part of their monthly mortgage payment. HECM borrowers aren’t required to make mortgage payments (as long as program obligations are met, including the payment of property charges), so the annual fee is added to the loan balance over time.
How the MMIF funds are used
The funds in the MMIF are used to protect lenders against loss in the following instances:
- A traditional “forward” FHA mortgage borrower defaults and the home is foreclosed at a loss to the lender.
- A reverse mortgage is settled up due to a maturity event and the home isn’t worth enough to pay off the entire loan balance. Unlike traditional “forward” FHA loans, HECMs are non-recourse, which means the most that will ever have to be repaid is the value of the home.
Can the MMIF run out of money?
The MMIF is fully backed by the United States Treasury, so it can never run out of money. Through most its history, it has never needed to be replenished by the United States Treasury. However, in 2013, the fund dropped below what was needed to cover losses for traditional FHA mortgages and HECMs and had to be replenished from the United States Treasury.