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The Obama administration is taking steps to shore up the country’s Federal Housing Administration (FHA) program, as rising demand and a slower than expected rebound in property prices pushes the reserve accounts below 2 per cent.
The reserve accounts are a cushion against expected losses in the FHA program, which has suffered soaring defaults amid the housing collapse.
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According to a report on CNN News, the FHA program backstops banks if borrowers default on their loans, however, there is increasing speculation that the agency will not be able to handle growing delinquencies.
The agency's overall reserves stand at more than $30 billion and, according to Commissioner David Stevens, they are sufficient to cover future losses.
That said the Obama administration is still hoping to implement a number of steps that will reduce the riskiness of the program.
The government plans to hire a chief risk officer and increase net worth requirements for approved lenders to $1 million, up from $250,000. Lenders will also be responsible for any losses resulting from fraud on the part of mortgage brokers.
It is believed the changes will eliminate smaller FHA lenders and weed out some of the riskier borrowers.
