Housing Agency's Financial Cushion Sinks

ALAN ZIBEL

WASHINGTON (AP) — The Federal Housing Administration's financial cushion has fallen to a dangerously low level, but government officials maintain the agency should avoid a taxpayer bailout under "most economic scenarios."

The agency, a major source of funds for first-time homebuyers, faces mounting concerns that it will eventually need an infusion of cash. FHA losses have increased with the unemployment rate as more homeowners default on their loans. About 17 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

Agency officials, however, said Thursday the agency won't need a rescue unless the economy slips back into a severe recession. In that worst-case scenario, home prices in 10 large cities would fall another 28 percent and unemployment would soar to 12.5 percent from the current level of 10.2 percent.

Already, FHA's reserves have fallen to $3.6 billion, compared with $685 billion in outstanding insured loans for the fiscal year ended Sept. 30. That's a ratio of 0.53 percent and far below the 2 percent threshold required by Congress.