The FHA, which is known to play a crucial part in the process of stabilizing the housing markets, has declared projected losses worth $16.3 billion at the close of September. This could in fact be a prelude to the possibility of a bailout for taxpayers. The prevailing financial precariousness could in fact push the FHA to tap the American treasury in a bid to stay afloat. It is to be noted that since its inception during the Great Depression, the Federal Housing Administration has always been funded via premiums from mortgage insurance. The agency has stated that determining whether they require a bailout at all would not before next year.

The Federal Housing Administration would be required to maintain cash reserves to cover up the mortgage losses. However, in the annual report, the agency stated that a below average rate of recovery in the housing markets has in fact led to the dwindling of its reserves by $16.3 billion. The cash reserves of FHA are never expected to fall below 2% of the loss amount projected. They ended 2012 at -1.44% below the lowest level of 0.24% registered at the end of 2011.

However, both the Department of Housing and Urban Development and the FHA have gone on to state that the report does not mean that the FHA does not possess enough cash to repay insurance claims. So, it is still not time to deduce that it will immediately need to withdraw Treasury funds. The 2014 budget proposal by President Obama, due in February, would put in a request with respect to taxpayer money, coupled with a final determination that the FHA would need the funds next September. The FHA has been granted authority to withdraw money from the treasury; however, it has never used its right till date.

The FHA never lends money. However, it provides guaranteed to bank loans against insurance premiums. As of date, it ensures a whopping $1.1 trillion in loan amount! However, its expanded role of backing mortgage payments with low down payments and helping borrowers deal with foreclosures has weakened its financial standing quite a bit. As a result, it has to undertake measures like boosting its premiums among others, in 2009, in order to secure its capital reserves.

According to Carol Galante, the present commissioner of the FHA, the loans issued during the present administration are strongest in the history of the agency and the actuarial reports would indeed be taken seriously. The commissioner also promised that aggressive steps would be taken for protecting the financial health of the agency even while supporting the housing markets all the way!