The government’s mortgage insurance program, which has become a key pillar of the housing recovery, reported this week a steep drop in cash reserves, increasing the likelihood of a taxpayer funded bailout. I’m a day late to this news, but I wanted to blog on the Federal Housing Administration’s status, because loans insured by the agency have accounted for roughly 25% of home purchase loans in Orange County over the past few months, according to DataQuick. Nationally, FHA loans accounted for 50% of first-time buyer loans in the second quarter. So it’s troubling to hear from the Washington Post that FHA’s auditor concluded the following: As of Sept. 30, (FHA) reserves had an estimated value of $3.6 billion, a sharp drop from the $12.9 billion available a year earlier, the audit found. The current total represents 0.53 percent of all outstanding single-family-home loans insured by the FHA, well below the 2 percent portion set by law. This is the first time reserves have fallen under that threshold since 1994. The reserves were at 3% a year ago. Download the FHA audit HERE. The audit also shows that seller-funded down payments — which FHA finally was able to stop a year ago — continue to account for a big share of losses.

Read more here – FHA short on cash