Federal Housing Administration May Be the Next Bailout Recipient

At a Dec. 6 Senate hearing on the federal government's role in the housing market, senators grilled Shaun Donovan, President Obama's Housing and Urban Development Secretary, about whether the Federal Housing Administration would need a taxpayer-funded bailout next year. "I'm not going to assign a probability at this point," Donovan said. "Obviously I'm highly concerned."

Donovan might not want to come out and say it, but it looks as if—for the first time in the agency's 78-year history—the FHA is going to have to be rescued.

Last month, an annual audit found that the FHA, which helps low-income families buy homes by insuring their mortgages, has a shortfall of $16.3 billion. The agency insures about 15 percent of homes purchased in the U.S. and pays out claims to lenders if homeowners default. The housing market may be improving, but the FHA is still paying out more claims than it can handle.

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