Mutual Mortgage Insurance Fund

What Is the Mutual Mortgage Insurance Fund (MMIF)?

The Mutual Mortgage Insurance Fund (MMIF) is a federal fund that acts as the insurer of mortgages that are guaranteed by the Federal Housing Administration (FHA). It supports both FHA mortgages used to buy homes and home equity conversion mortgages. Home equity conversion mortgages are the most common type of reverse mortgages; reverse mortgages are used by those 62 years or older as a way of extracting equity from their homes.

The borrowers of either of these loan types — FHA mortgages and home equity conversion mortgages — pay into the fund with a one-time up-front premium. This one-time upfront premium may be paid at closing or rolled into the loan. Borrowers are also required to pay annual mortgage insurance premiums (based on a certain percentage of the loan amount). The cost of mortgage insurance depends on the loan type. The rates also occasionally change, depending on the mortgage market and the viability of the MMIF.

How the Mutual Mortgage Insurance Fund (MMIF) Works

In the case of FHA loans, the MMIF pays the lender if the borrower defaults and the lender loses money after selling the house in foreclosure. Borrowers who have FHA mortgages are considered higher-risk by lending institutions because of the low down-payment requirement and the less-stringent income and credit requirements associated with these loans.

In the case of reverse mortgages, the fund pays the lender if the borrower owes more on the reverse mortgage than the home is worth when the lender sells it. Reverse mortgages are considered higher risk because they are non-recourse loans. With a non-recourse loan, the lender cannot ask the borrower to pay the difference.

The MMIF makes sure lenders don’t lose money on certain types of risky mortgages. This, in turn, encourages these institutions to offer loans they otherwise might not (and charge lower interest rates and fees than they otherwise might choose to).

Upfront and ongoing mortgage insurance premiums for both FHA loans and reverse mortgages must be low enough to not discourage borrowers, but high enough to support the MMIF. The MMIF was authorized by Section 203(b) of the National Housing Act of 1934.

In 2019, the MMIF reached its highest level fiscal year since 2007. The FHA stated that its MMIF capital ratio for the fiscal year 2019 was 4.84%, which is considerably higher than the congressionally mandated minimum level of 2%. In 2009, as the fund was hit by the wave of mortgage defaults associated with the 2008 financial crisis and Great Recession, the fund dropped below the minimum 2% level and remained under the level until the fiscal year 2014.