FHA reserves dropping to low levels

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 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.

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