FHA Cash Cushion Falls Below Mandated Level

Washington, DC, Sept 18, 2009--The Federal Housing Administration said Friday its cash cushion will fall below below mandated levels for the first time, although officials say it won't need a taxpayer rescue.

The agency, a growing source of funds for first-time homebuyers, faces mounting concerns that it will soon need a taxpayer bailout.

As of this summer, about 17 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

Rising defaults mean the FHA's reserves may sink below the 2 percent mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.

David Stevens, the agency's commissioner, however, said in an e-mailed statement that FHA "will not require taxpayer assistance."

The agency itself does not make loans, but rather offers insurance against default. Many borrowers are willing to pay for the insurance because FHA loans only require down payments of 3.5 percent of the purchase price.

The FHA now insures about 5.3 million mortgages, up from about 4 million three years ago.