WASHINGTON – Sept. 4, 2009 – The Federal Housing Administration is in danger of seeing its reserves fall below the 2 percent threshold mandated by Congress, as it reels from ever-increasing mortgage-based losses – and may require a taxpayer bailout.
The FHA’s reserve fund was equal to about 3 percent of its loans issued last year, down from 5.4 percent a year ago.
Options for the agency, part of the U.S. Department of Housing and Urban Development, could include getting taxpayer funds to top off its reserves, or increasing the premiums borrowers pay for insurance from the agency.
The FHA insures private lenders against defaults on certain home mortgages. Outstanding FHA-backed loans totaled $429 billion in fiscal 2008, and are projected to reach $627 billion this year.
Rising defaults have hit the FHA’s reserves hard. According to the Mortgage Bankers Association, at the end of the second quarter, 7.8 percent of the FHA's loans were 90 days late or more, or in foreclosure – roughly equal to the national average, but up from 5.4 percent a year ago.
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