In January, HUD Assistant Inspector General James A. Heist told Congress that the FHA needs more personnel and more oversight.

Home loan quagmire
Rep warns another U.S. agency may need big bailout
By Christine McConville / Herald Highlight: FHA Woes
Monday, May 11, 2009

Bad debt at the Federal Housing Administration could send the nation’s already wobbly economy into yet another tailspin, U.S. Rep. Stephen Lynch told the Herald in an interview late last week.

“Problems at the FHA could upset the little recovery that we now have,” said Lynch, who is drafting legislation that would require the sprawling government agency to provide Congress with a financial status report twice a year.

“Right now, we can’t tell where they are at,” he said.

Currently, the FHA, which guarantees payments of millions of home loans, reports its financial status to Congress once a year in the fall.

Due to recent upheaval in the mortgage market, the FHA’s share of home loans has ballooned to about 30 percent.

Because of that growth and the spike in foreclosures, the FHA’s cash reserves - which, by law, must be at least 2 percent of the value of its outstanding mortgages - dipped from more than 6 percent to 3 percent as of last fall.

“And since then, things have only gotten worse,” Lynch said, adding that the FHA may soon need a major taxpayer bailout.

“They could have billions of dollars in liability,” Lynch said. “I want answers now, so it’s not a surprise.”

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FHA, FHA problems