Question: Isn’t it true that the FHA program has been bailed out with taxpayer money from the TARP program?

Answer: Nope. The FHA has not needed bailout money from TARP, the government funding used to bail out Wall Street. In fact – and every so often facts ought to count – the FHA’s financial position has actually improved during the past year.

The FHA program is a borrower-funded insurance plan. When you get an FHA loan you pay an up-front mortgage insurance premium equal to 2.25 percent of the mortgage amount. You also pay an annual mortgage insurance premium, usually equal to .55 percent of the outstanding loan amount. The premium money is collected and placed in a reserve account called the FHA Mutual Mortgage Insurance Fund.

With FHA insurance you can buy property with just 3.5 percent down. Without insurance – either from the FHA, the VA or from private mortgage insurance companies – you would need a lot more cash up front to buy a home, cash that might take years to accumulate.

For fiscal year 2009, HUD reports that the “FHA’s capital resources have grown from $27.2 billion at the start of the year to $30.7 billion at year’s end. That represents an overall capital-resource ratio against outstanding loan guarantees of 4.5 percent. The increase in capital resources is due primarily to premium revenues collected on new insurance in fiscal 2009. FHA collects a significant share of total premium revenues at the time of insurance endorsement, and FY 2009 yielded a record volume of new insurance commitments.”

The idea, of course, is not that the FHA program is somehow immune from the real estate downturn seen nationwide. One would expect claims and costs to rise. However, the purpose of insurance is to have reserves set aside so claim money is available during tough times. The reality is that last year FHA reserves rose without the need for any TARP money.

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Need real estate advice? Peter G. Miller would like to hear from you. Send your questions to peter@ctwfeatures.com. Due to the volume received, not all letters may be answered.