FHA Audit Divulges Low Reserves, Experts Say Not to Worry

November 16, 2009 - The Federal Housing Administration (FHA) has recently been plagued by several significant losses, and now audit findings have revealed a large deficit. Whether it is a product of heightened stress levels or risky business, the administration appears to have become a victim of the same financial pitfalls so many corporations have endured.

Having dropped to 0.53%, the FHA's capital reserve is far below Congress' 2% minimum threshold. Despite this discovery, FHA Commissioner David Stevens says there is no need to worry about the company's financial footing.

"Without FHA there would be no (housing) market, and this economy's recovery would be significantly slower," Stevens said during a speech at the National Association of Realtors' yearly conference in San Diego. "With this temporarily increased role comes increased risk and responsibility."

Furthermore, FHA loans have become such a crucial tool for the mortgage industry, they accounted for nearly 50% of first-time homebuyers' loans in the second quarter of 2009. Without assistance from the FHA, many homebuyers would be out of luck.

In a press briefing following the release of the audit figures, HUD Secretary Shaun Donovan reassured citizens, "The FHA is playing a critical role in restoring health to the housing market by helping working families' access mortgage financing when private capital is tight." So tight, that in an effort to manage risk and anticipate future problems, the FHA announced several credit policy changes to become effective January 1, 2010.