Federal Housing Administration may take unprecedented step of relying on taxpayers

The Federal Housing Administration is expected to announce that rising mortgage delinquencies could exhaust its reserves, potentially leading the agency to rely on taxpayer funding for the first time ever, the Wall Street Journal reported.

Last year, the FHA accounted for one third of home-purchasing loans among owner occupants, the Journal said. By backing mortgages with down payments as low as 3.5 percent, the agency plays a crucial role in supporting the housing market. Private lenders are loath to issue such loans without a government guarantee.

The FHA’s report, expected later this week, could result in billions of dollars added to the U.S. government’s housing stabilization efforts. An increase of more than 100,000 loans from last year means that the FHA now has 739,000 seriously delinquent loans, more than either Fannie Mae or Freddie Mac, even though it guarantees fewer mortgages than either of them.

Analysts predict that Administration officials could announce preventive measures such as raising mortgage-insurance premiums and financing additional legal settlements with lenders. [WSJ]— Hiten Samtani