The Federal Housing Administration’s reserve fund has dropped to .53 percent—far below the two percent ratio required by Congress. The fund is supposed to cover losses on the mortgages insured by the agency.
Although officials said the agency will not have to seek a bailout from Congress, its unstable financial condition has reinforced critics who call for a change in its lending guidelines. Since the FHA backstops banks if borrowers stop paying, the mortgage meltdown led to an explosion in its popularity.
The FHA’s dire condition can be attributed to several factors, one of which is the fact that home prices have not recovered and thus depressed the value of the agency’s collateral.
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