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Another taxpayer bailout?

By Judy Martel · Bankrate.com
Tuesday, November 20, 2012
Posted: 1 pm ET

Taxpayers who are tired of paying the repair bill for the housing crisis could get the unwelcome news that they're being called upon to pay more in order to shore up the reserves of the Federal Housing Administration.

On Friday, the FHA announced that its annual audit revealed that its projected reserves, used to cover losses, total $30.3 billion -- $16.3 billion short for the fiscal year ending Sept. 30. That could lead to the agency tapping into the U.S. Treasury for funding for the first time in its 78 years of existence.

The root of the FHA shortfall is, of course, underwater mortgages. The FHA acts as mortgage insurance, guaranteeing loans with a down payment as low as 3.5 percent. When private mortgage lenders sold subprime loans during the housing bubble, the FHA lost market share. After the subprime market collapsed, the FHA had a rush of business, beginning in 2008. While the agency served an important role in helping homeowners afford a mortgage, it was also left with a glut of borrowers who couldn't pay.

The FHA plans to raise revenue by increasing the premiums it charges to homeowners, extending the amount of time premiums are paid to include the life of the loan and reducing the amount that seniors can borrow on reverse mortgages. In the meantime, a decision to draw against the Treasury won't be made until next September, so if the housing market improves, taxpayers might be off the hook.

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