Federal Housing Administration bailout just around the corner?

The Federal Housing Administration (FHA) has a 50% chance of requiring a taxpayer bailout next year; whether it will happen and its magnitude depends on the direction of home prices. Decreasing home values, a growing number of defaults and insufficient mortgage insurance premiumDefault mortgage insurance required and charged by the Federal Housing Administration (FHA) for FHA-insured loans with loan-to-value ratios higher than 80%. (MIPDefault mortgage insurance required and charged by the Federal Housing Administration (FHA) for FHA-insured loans with loan-to-value ratios higher than 80%.) fees continue to plague the FHA’s ability to cover its losses on loans; an uncanny reflection of pre-bailout Fannie MaeA government-sponsored entity operating in the secondary mortgage market..

The FHA has the existing authority to take taxpayer money directly from the U.S. Treasury without seeking approval from the White House or Congress. Although the agency has never required taxpayer assistance, current FHA capital reserves have dropped to .24% of projected losses, with cash reserves totaling just $2.6 billion. The legal minimum reserve requirement is 2% of projected losses; the FHA has not hit held this minimum since 2008.