No serious observer of the Federal Housing Administration (FHA) believes its financial future is bright. But few Bet the House: Why the FHA is Going (For) Broke

Download PDF recognize just how troubled this government agency really is. That is because it uses lax accounting standards that obscure real and present danger to its own bottom line and the American taxpayer. In fact, when measured against the accounting system used by private mortgage insurers, the FHA is deeply insolvent, with a capital shortfall of tens of billions of dollars. If it were a private firm, state regulators would immediately shut it down. 

Even using its own rosy numbers puts the FHA's leverage at 840 to 1, a far more scandalous ratio than even Fannie Mae and Freddie Mac. As shown by Fannie and Freddie as recently as 2008 and the slow-motion collapse of the savings and loans (S&Ls) in the 1980s, if government-backed entities are allowed to continue operating when they are insolvent, their losses will only compound.

Indeed, the FHA has almost tripled its insurance in force in only three years, in part to cover its losses. And Congress made matters worse last fall when it raised the FHA's conforming loan limit to $729,750. That pleased the powerful National Association of Realtors, but it simply poured fuel on the fire. Before the agency's losses skyrocket, triggering a massive taxpayer bailout that deepens our nation's debt, Congress should reverse that mistake and enact reforms to pull the FHA back from the brink.