The government agency protecting mortgage lenders against losses has been burning through its liquidity as it attempts to stem the rising tide of foreclosures, the Washington Post reported. An independent audit said the reserve fund of the U.S. Federal Housing Administration will drop below the minimum levels required by Congress, spurring talk that the agency would need to seek government assistance.

An audit last year found that the reserve fund had shrunk to 3% as of Sept. 30, compared with 6.4% a year earlier, the Post said. “The fund's value was estimated at $12.9 billion, down from $21.2 billion the previous year.” 

David H. Stevens, FHA Commissioner, acknowledged that the agency's reserves will slide below the 2% level required by Congress as the new fiscal year begins on October 1.

However, he was adamant that the agency could handle the solvency problem without a bailout. “We are absolutely not going to Congress and asking for money for FHA,” he told the Washington Post. “We're not going to need a special subsidy or special funding of any kind.”

Other measures would be taken instead, said Stevens, including new loan standards for lenders and the hiring of chief risk officer. “The fund's reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new congressional action," he added.

The FHA was created in 1934 to insure mortgage lenders against losses due to defaults. In the housing boom earlier in the decade the agency was increasingly seen as irrelevant, but once the bubble burst and foreclosures became an everyday reality for millions of Americans, the FHA’s reserve’s fund fell precipitously. 

Stevens is expected to announced measures to increasing the fund’s liquidity later today.