That hasn’t come without cost. As the FHA filled the void left by the private sector, it has assumed the risks of those loans. And now that a growing number of people have stopped paying their mortgages, the FHA has had to pay out more in claims that it forecast. The agency has just $3.6 billion on hand to cover any unexpected losses in its $685 billion portfolio. That paltry level of reserve funding, less than is mandated by the government, has left some members of Congress in a twitchy mood and some onlookers to wonder if the FHA will eventually need a massive infusion of cash.
(See high-end homes that won’t sell.)
If Congress does wind up extending emergency funds to the FHA — which is a full-fledged part of the Federal Government, unlike quasi-government bailout beneficiaries Fannie Mae and Freddie Mac — it will be in large part because of the role the agency has played in stabilizing the housing market. Last spring, as first-time home buyers rushed to take advantage of the $8,000 tax credit designed to lure them into the market, the FHA insured a full 49% of their mortgages. In October, Congress renewed a higher limit on the size of FHA loans (now up to $729,750), first put in place last year, to allow the agency to expand into pricier markets. “The government may need to inject billions of dollars into the FHA, but the alternative — another perturbation in the housing market, more foreclosure aid, more bank bailouts — could have cost dramatically more,” says housing economist Thomas Lawler.
Read more: TIME
