FHA may be headed toward a bailout

WASHINGTON, Nov. 10 (UPI) -- Federal Housing Administration officials said the U.S. agency's reserve fund has fallen below its federal mandate due to high levels of loan defaults.

Defaults on FHA loans reached 24 percent in 2007 and 20 percent in 2008, the agency said. In addition, the FDA's emergency reserve fund was declining before the housing bust, The Washington Post reported Tuesday.

When the housing boom was on and interest rates were low, private lenders were able to attract what would have been the FHA's better customer.

"The FHA could not compete well for the best borrowers, and it was left with some of the riskier borrowers," said Mathew Scire, a Government Accountability Officer director.

Consequently, the FHA has drawn from its reserve fund for the past seven years. A recent audit shows the account is below 2 percent of the FHA's outstanding loans, the mark set by Congress as a minimum for the fund.

Keeping the fund above the threshold is automatic, written into law. A transfer of U.S. Treasury funds to the FHA would amount to a taxpayer bailout of the agency, the newspaper said.

Senior agency officials have not conceded that a bailout is necessary, the Post said.