Federal Housing Administration running low on cash

As of Oct. 1, for the first time in its history, the Federal Housing Administration (FHA) will see its cash reserves fall below the two percent minimum mandated by Congress. The cash reserve numbers were calculated as part of a required audit due out this fall, according to a report in The Washington Post. (I discussed this likely possibility two weeks ago.)

The FHA's cash reserves are built with the insurance premiums home buyers pay when they close on an FHA loan. While private mortgages are insured using Private Mortgage Insurance (PMI) premiums paid monthly by borrowers who don't put down at least 20 percent on a home, FHA insurance premiums are paid in full at the time of closing. The insurance premium is usually folded into the mortgage and paid over the life of the loan.