FHA's dilemma - back loans, stay solvent

The San Francisco Chronicle reports:

Keally McBride and her husband both have good jobs and credit scores, but they would not have been able to buy their three-bedroom home in Oakland's Grand Lake area if not for Federal Housing Administration insurance that allowed them to put down just 3.5 percent.

McBride and buyers like her boosted the popularity of FHA-backed mortgages to historic highs in the Bay Area and across the nation in 2009 after subprime financing evaporated and as private insurers became increasingly reluctant to cover mortgages with down payments of less than 20 percent.

But now 1 in 6 FHA borrowers nationwide is behind on payments, and the FHA's backup reserve fund is below the congressionally mandated minimum.

Nancy Pelosi and Barney Frank aren't concerned about 28 to leverage when Uncle Sam is behind the trade.