IS FHA FACING ITS OWN FORECLOSURE?

WASHINGTON - Housing and Urban Development Secretary Shaun Donovan said Thursday that he could not guarantee that efforts to shore up the Federal Housing Administration won't save it from needing a taxpayer bailout next year.

Sharp revisions to the FHA's standards for insuring mortgages - often for first-time, lower-income homebuyers - could dampen the recovery and lead to more foreclosures that further reduce the size of the fund that the agency uses to cover its losses.

The FHA insures mortgages with as little as 3.5 percent as a down payment and has backed loans for people who went through foreclosures as recently as three years earlier.

The agency said last month that its reserves to cover losses dropped into negative territory for the fiscal year that ended Sept. 30.

Under law, the FHA's net worth must not drop below 2 percent of the outstanding balances of the loans it guarantees. But with the collapse of the housing market, the agency's "reserve ratio" has been dropping since 2006 and ended the 2012 fiscal year at minus-1.44 percent.

- Los Angeles Times