FHA's reserves are the strongest on record. Its debt collector isn't working.

The Federal Housing Administration insures mortgages so lenders will approve buyers who couldn't otherwise qualify — mostly first-time and lower-income homebuyers.▸ As of September 30, 2025, FHA carried active insurance on more than 8.1 million forward mortgages worth over $1.65 trillion in unpaid principal balance, and the insurance fund behind that book holds more capital, relative to its size, than at any point since Congress started requiring a minimum reserve. By that measure the program is a success story. Underneath it, a separate report tells a different story about what happens once a borrower actually falls behind.

FHA's Mutual Mortgage Insurance (MMI) Fund is the reserve that absorbs losses when insured borrowers default.▸ Congress requires it to hold capital worth at least 2.00 percent of the loans it insures. As of September 30, 2025, the Fund's Capital Ratio stood at 11.47 percent — more than five times the statutory minimum, and tied with the prior year for the highest level on record since the ratio became a legal requirement. MMI Fund capital reached $188.87 billion, up $16.11 billion in a single year, even as the book of insured loans grew to $1.65 trillion.

That climb — from 4.84 percent in FY2019 to 11.47 percent today — is the product of a decade of premium collections outrunning claims.▸ It is also, by itself, a balance-sheet number. It says nothing about whether the office that has to act on any individual borrower's file is actually doing its job.

When an FHA borrower falls behind, one of the tools HUD uses to keep them in their home is a "partial claim" — HUD advances funds on the borrower's behalf to bring the loan current, and the borrower signs a second, interest-free note that isn't due until the first mortgage is paid off, refinanced, or otherwise ends.▸ Servicing and collecting on those notes is handled by HUD's National Servicing Center (NSC) through a private contractor. Between fiscal years 2021 and 2024, more than 340,000 of these partial claims came due as the underlying mortgages terminated.

The HUD Office of Inspector General audited that process and pulled a statistical sample of 81 loan files.▸ Seventy-four of the 81 — 91 percent — had at least one servicing or collection error: missing demand letters, unreclaimed lender incentive fees, incomplete servicing files, late payoff processing, unfiled bankruptcy claims, or delayed lien releases.

The two most common failures carry direct consequences for borrowers, not just HUD's books.▸ In 37 of 81 files (45.7 percent), the servicing contractor failed to record a lien release on time — delays ran from 11 to 594 business days — which the report notes "may end up costing the borrower the sale or refinance opportunity" on their own home. And in 72 of 81 files (88.9 percent), servicing records were incomplete or inaccurate, which the inspector general found delays debt collection "potentially rendering it uncollectable if enough time passes," a direct risk to the insurance fund the same report celebrates elsewhere.

Auditors attributed the failures to a post-pandemic surge in partial-claim volume, reliance on manual processing, and a servicing contract that — after four years in force — still lacked defined performance metrics for the contractor to be held to.▸ HUD's own contract monitors reviewed the contractor quarterly between October 2021 and February 2025 and never once flagged a discrepancy.

Figures cover the FHA forward (non-reverse) mortgage program only, as reported for fiscal year 2025 and the OIG's FY2021–2024 audit window; HECM reverse-mortgage totals are cited separately and not included in the headline figures above.