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With plans to hire a new Chief Risk Officer and a set of credit policy changes underway, the Federal Housing Administration is shoring up its defenses before sending its annual actuarial study to Congress in November. Since the study—independently conducted—will show that the capital reserve ratio is dropping below the 2 percent threshold mandated by Congress, it is going to raise some eyebrows.

Commissioner David Stevens says that the fund’s reserves are sufficient to cover future losses, and that the FHA isn’t going to need a bailout. “By keeping affordable loans flowing, particularly to the growing ranks of first-time homebuyers, the FHA has been critical to our nation’s economic and housing recovery,” says HUD Secretary Shaun Donovan. But face it: it has made a lot of loans at 3.5 percent. Is that enough skin in the game to keep a buyer from walking away?

Lisa Marquis Jackson, Vice President of John Burns Real Estate Consulting, talks today about the growing pains the FHA has suffered, and the volatility it has created in its ability to handle its own backlog. When prices dropped in states whose housing prices were traditionally too expensive to see many FHA loans, whole new markets were created in California, Nevada and Florida… and some of the brokers who lived well on the subprime loan market moved right over into FHA lending.  Plans are afoot to look more closely at the folks who are making the loans, and with that actuarial study coming out in November, it is probably time to clean house.