The Federal Housing Administration’s cash reserves are falling short. This could impact the market in a multitude of ways, including the FHA depleting its reserves, which creates fewer financing options for buyers as well as impacting how quick stabilization occurs.
The audit, to be released Tuesday by the FHA, estimated that the value of the agency’s reserves stood at $2.6 billion as of Sept. 30, down 45% from an already low $4.7 billion last year. (WSJ)
Many have blamed the FHA for playing a part in the both in real estate boom and bust, but as of yet FHA still hasn’t run out of funds and plays a major option for the homebuyers presently looking to purchase. The FHA hasn’t had to seek governmental funds before, offsetting losses by increasing homeowners’ insurance premiums and implementing tighter standards.
But if home values continue to decline, this could generate larger losses, depleting the minimal reserves that the FHA has currently. This could cause the FHA to seek help for the first time in its 77 year history. This in turn could cause FHA to take a smaller role on the market, thereby preventing possible homebuyers from financing options, even if they qualify.
Letting FHA fall to the wayside will impact the market for the next several years as both new homebuyers and previous homebuyers who lost equity and home value may not be able to qualify with other programs.