11/15/2011 08:43 am ET

FHA May Require A Taxpayer Bailout By The End Of Next Year: Report

The Federal Housing Administration's cash reserves have dropped so low that there is a close to a 50 percent chance it could run out of funds and may require a taxpayer bailout next year, the Wall Street Journal said, citing an annual independent audit of the agency's finances.

The audit estimated that the value of the agency's reserves were $2.6 billion as of end-September, down 45 percent from a year ago, according to the newspaper.

The audit, to be released on Tuesday by the FHA, was prepared by Integrated Financial Engineering Inc, an analytics firm, the WSJ reported.

The FHA, which provides mortgage insurance for millions of homeowners, has not run out of money and has not needed any Treasury funds partly because it has repeatedly increased homeowners' insurance premiums to raise cash and enforced tighter risk controls, the newspaper said.

"Even in the tough economic environment, we have been successful in protecting the (insurance) fund. We still clearly see there are downside economic risks that we have to be vigilant about," Carol Galante, acting commissioner of the FHA, told the Journal.

The FHA could not immediately be reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Swetha Gopinath in Bangalore; Editing by Kim Coghill)

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