Concerns growing that FHA could go broke
The Federal Housing Administration has played a key role in the housing market since the mortgage crisis, backing about one-third of all new mortgages for home purchases.
But there is a growing concern that FHA, which is funded through mortgage-insurance premiums, could run out of money if the economic recovery doesn't pick up steam, The Wall Street Journal reports.
A forthcoming study commissioned by the conservative American Enterprise Institute says that FHA faces about $50 billion in losses in the coming years, largely due to loans made during the peak of the financial crisis. The study isn't the first to predict that the agency would go broke, and it may have political consequences. Some Republicans have called on FHA to begin raising down payments, The Journal said. The study, along with the FHA's own annual financial report, due out next week, could also spark renewed debate over the role of the government in shoring up the weak housing market.
FHA officials have tried to boost the agency's coffers by raising insurance premiums for borrowers and down-payment requirements for certain borrowers. If FHA runs out of money, it can draw on Treasury Department funds without needing congressional appropriation. It would be the agency's first taxpayer bailout since its inception 77 years ago.