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FHA may require bailout, after all

Report: Defaults on bubble-era loans draining insurance fund

A federal agency that insured more than half of all loans for first-time homebuyers last year may soon look to taxpayers to shore up its dwindling finances. Throughout its 78-year history, the Federal Housing Administration has paid for itself through upfront and annual mortgage insurance premiums charged to borrowers. But next week the agency will issue an independent financial audit that may set the stage for the FHA's first-ever draw from the U.S. Treasury, Bloomberg reports. The FHA has been hard-hit by defaults from loans made from 2005 and 2008 and has taken steps to strengthen its capital reserves, including raising mortgage insurance premiums three times in 2010 and again this year. The agency has also tightened credit standards and prohibited seller funding of buyer down payments, a practice the agency estimates will cost it $14 billion on loans issued before 2009. As of June 30, 25.8 percent of FHA's 2007 loans, 24.9 percent of its 2008 loans, and 12.2 percent of its 2...