FHA may require a bailout

During a hearing by the House Financial Services Committee, Representative Jeb Hensarling said the Federal Housing Administration might require billions of dollars for a taxpayer bailout if the housing market continues to struggle. Currently, the FHA backs about one-third of all U.S. home loans.

Hensarling fears the federal agency could end up like Fannie Mae and Freddie Mac and possibly come under government conservatorship, Bloomberg reported.

"FHA is a disaster in the making, and if we don't do something, it may become the next Fannie and Freddie," Hensarling said at the hearing. "If the FHA was a private financial institution, likely someone would be fired or fined and the institution would find itself in receivership."

Housing and Urban Development Secretary Shaun Donovan responded to congressional concern over the FHA's financial situation, pointing out that the agency's reserves are predicted to recover and reach the 2 percent threshold by 2014, which is earlier than originally expected, the Wall Street Journal reported.

“While we all have been through the second-worst housing downturn in the history of the country, FHA, unlike many other institutions, retains a positive fund balance and the current book of business is strong,” Donovan said.

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