The Federal Housing Administration is expected to announce this week that it's on the verge of running out of cash and may need taxpayer help, the Wall Street Journal reports. Rising mortgage defaults are battering the agency, which, though it guarantees fewer mortgages than either Fannie Mae or Freddie Mac, now has more seriously delinquent loans on its hands than either. About 25% of the mortgages it guaranteed between 2007 and 2008 have fallen into that category; in total, as of September it had insured 738,991 loans that were 90 days or more past due.
Thanks to the FHA's "permanent and indefinite" budget authority, it will automatically get any taxpayer assistance it needs, without having to ask Congress for the money. But such a rescue would be the agency's first, and likely set off a political firestorm. The Obama administration may try to stave it off with maneuvers like raising mortgage-insurance premiums, but Republicans have often called for more drastic action, like reducing maximum loan limits and increasing minimum down payments (currently as low as 3.5%). But economists warn that hampering the agency could have dire effects. "We would be talking about Great Depression II instead of the Great Recession," one homebuilding consultant says. (Read more Federal Housing Administration stories.)