FHA: The next government housing bailout?

Reuters is reporting that the Federal Housing Administration will need emergency help -- in the form of a cash bailout -- from the U.S. Treasury Department, for the first time in its history.

According to Reuters:

The agency, which offers private mortgage lenders guarantees against homeowner default, has nearly exhausted its reserves for the mortgages it backs, making it necessary for the government agency to turn to the Treasury Department for a cash injection.

The FHA has never needed to tap the Treasury before because it has been able to take other actions, including raising insurance premiums, to stay solvent.

The White House projected in April that the FHA would face a shortfall of $943 million for the fiscal year that ends on Monday, but the agency said it would wait until the end of the budget year to make a final decision on whether to draw Treasury aid.

To better understand how the FHA works and why it may need a bailout, check out Paddy Hirsch's Whiteboard on the topic.

About the author

Ethan Lindsey is the senior digital editor for Marketplace.

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