FHA reserves dropping to low levels

September 04, 2009 09:17AM

The Federal Housing Administration’s reserves are dangerously close to dipping below the Congress-mandated level, according to government officials. The FHA, which has been instrumental in guaranteeing loans and spurring a housing market recovery, has endured a wave of mortgage-related losses in recent months, causing some financial analysts concern. “They’re probably going to need a bailout at some point because they’re making loans in a riskier environment,” Edward Pinto, a former chief credit officer at Fannie Mae, said. “I’ve never seen an entity successfully outrun a situation like this.” The total dollar value of FHA-backed loans is projected to hit $627 billion this year, up nearly $200 billion from fiscal year 2008, while its market share has reached 23 percent in second-quarter 2009, from 2.7 percent in 2006, according to the Wall Street Journal. In June, Housing and Urban Development secretary Shaun Donovan said that a future taxpayer bailout for the FHA program would likely be unnecessary.