HUD says FHA at 'real risk'

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WASHINGTON, Nov. 13 (UPI) -- The U.S. Secretary of Housing and Urban Development said defaulting loans have the Federal Housing Administration in a "real risk" of depleting its reserves.

"There is a real risk. Nobody has a crystal ball. We recognize that there is a possibility that the reserves go below zero and stay there," said HUD Secretary Shaun Donovan in an interview with The New York Times.

The FHA was involved in 20 percent of new U.S. mortgages in the past 12 months and has been predicted in a federal audit to run out of money -- worst case scenario -- in 2011, the Times said.

The mechanism already exists for the FHA to borrow money from the Treasury. Donovan said, "there is no extraordinary action that Congress or anyone else needs to take."

The audit said the FHA may need to borrow $1.6 billion, a hefty sum, but small compared to other bailouts in the past year.