HUD Homes / VA Homes News

The Federal Housing Administration (FHA) announced last week that its reserves are set to fall below a legally mandated level. The government agency is funded through fees paid by homeowners who have FHA-backed mortgages, and that money is now at risk by the steady stream of foreclosures.

But David Stevens, FHA commissioner announced that there was no need for the government to intervene and push money to the agency. Instead, he unveiled a series of policy changes planned to reduce a risk of future losses. "There will be no taxpayer bailout," Stevens said.

However, others in the banking industry aren't so sure. With the FHA insuring more and more mortgages as banks tighten lending requirements, it could be only a matter of time before the beleaguered housing market and tough economic times cause the FHA to run out of its reserves.

Even the legislators are beginning to worry - Senator Christopher Bond has described the FHA as "a powder keg," and is worried about a new taxpayer expense.

The FHA was created during the Great Depression to help Americans buy homes. It insures mortgages secured with down payments as low as 3 1/2%. After the subprime mortgage market collapsed, the FHA has taken on a greater role in the mortgage industry. It now insures nearly 25% of the mortgage market, compared with only 2% back in 2006.