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The FHA is running on empty. The FDIC approves the pre-pay plan to build its Deposit insurance Fund. The Housing and Banking Indices remain a drag on the economy and markets. The US Federal Housing Administration (FHA) will likely join Fannie ( FNM ) and Freddie ( FRE ) as a ward of US tax payers. The FHA's excess reserves available to cover losses have fallen to 0.53% of the agency's book of business at the end of Q3 2009. This is down from 3% year over year. The cushion mandated by Congress is 2%, so the health of the FHA is a huge Red flag for the housing market and tax payers. If the FHA needs an appropriation from Congress it would be the first time in its 75-year history. Since they are an arm of the US government the Treasury would have no choice but to rebuild its reserves.

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