It’s as bad as many thought. The results of the Federal Housing Administration’s (FHA) annual independent audit were released yesterday after being delayed for about a week. The Federal mortgage insurer’s cash reserves have fallen to 0.53%, well below the 2% limit set by Congress.

If you’re a regular reader of this blog you’ll know that we’ve been documenting the FHA’s troubles for most of the year, and have at times referred to them as “The New Subprime,” and the probable recipient of the “Next Taxpayer Bailout.”

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In terms of this blog — in 2009 alone, it started out with warnings that the subprime market would return. When the below-prime market did return, it found a home with loans guaranteed by Federal Housing Administration (FHA). From there our coverage morphed into blog posts that skeptically documented the FHA’s growing balance sheets. Soon after, we flat out knew that the FHA was going to cost us (taxpayers).

Earlier this month HSH President Paul Havemann presented the exact scenario that would cripple the FHA’s lending abilities. Paul warned that “If [the FHA's] reserves falls below the minimum, either FHA will have to get out of the loan-insurance business until it improves… or Congress will have to shore up the FHA reserves with cold, hard cash.” The minimum for the FHA’s reserve fund must stay above the required level of two percent.

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