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Loan losses lead to FHA budget crisis

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By Reuters
Wednesday, Sept. 25, 2013, 6:51 p.m.

WASHINGTON — The Federal Housing Administration, weighed down by losses on souring loans, likely will need a cash infusion from the Treasury for the first time in its nearly 80-year history when the budget year ends, according to sources familiar with the matter.

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 government mortgage insurer plays a key role in helping those with low and modest incomes obtain access to credit to purchase a home.

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.

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