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Federal Housing Administration Next in Line for Bailout

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photo credit: jeffryturnerWASHINGTON — The Federal Housing Administration, which has played a crucial role in stabilizing the housing market, said it ended September with $16.3 billion in projected losses — a possible prelude to a taxpayer bailout.

The precarious financial situation could force the FHA, which has been self-funded through mortgage insurance premiums since it was created during the Great Depression, to tap the U.S. Treasury to stay afloat.

The agency said a determination on whether it needs a bailout won’t come until next year.

The FHA is required to maintain enough cash reserves to cover losses on the mortgages it insures. But in its annual actuarial report to Congress, the agency said a slower-than-anticipated housing market recovery has led its reserves to fall $16.3 billion below anticipated losses.

The FHA’s cash reserves aren’t supposed to drop below 2% of projected losses. They ended the 2012 fiscal year at -1.44%, down from the seriously low level of 0.24% at the end of 2011.

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Federal Housing Administration Running Out of Money, May Need Bailout

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If you thought bailouts were the stuff of 2008 you may want to think again.

A federal housing agency responsible for insuring hundreds of thousands of home loans may be running out of money and could soon be asking for a bailout from the government.

The Federal Housing Administration is so loaded with delinquent mortgages that its reserves are running low, according to a report from The Wall Street Journal the afternoon. The Journal, whose Nick Timiraos cites people familiar with the matter, notes that 9.6% of the FHA’s $1.08 trillion mortgage guarantees are more than 90 days past due or in foreclosure.

Just how bad is the FHA’s reserve problem? Last year the difference between its reserve amount and the money it would need if had to pay all its projected losses was just $1.2 billion , or .12% of its loan guarantees, the Journal reports. To put that in perspective, the agency is required to keep it above 2%.

If the FHA is indeed in need of a bailout then an already fragile housing recovery could be in trouble.

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