FHA Loans

The FHA Is Sitting on a Mountain of Cash (And Nobody’s Saying It Out Loud)

Turn on the news and you’d think the housing market is about to fall off a cliff. Everything is framed as “crisis,” “collapse,” or “the next 2008.” Fear sells, so fear is what gets amplified.

But when you actually read the data, a very different picture starts to form.

Let’s start with the part that rarely makes headlines.

The FHA has a massive reserve fund called the Mutual Mortgage Insurance Fund. Think of it as the emergency savings account for the entire FHA loan system. In 2025, that fund held around $140 billion, with more than $100 billion of it sitting in cash or near-cash. The law only requires them to hold enough to cover 2% of their risk. They’re sitting at over 11%.

In plain English, they’re not barely making it. They’re not fragile. They’re not one recession away from blowing up. They are over-capitalized and heavily insulated. This is not 2008. The system today is built with far more padding.

During COVID, though, the FHA went too far in the other direction.

The intention was good. Keep people in their homes. Give them time. Offer relief. But what started as help slowly turned into endless do-overs. Payment pauses, loan modifications, partial claims, then more modifications on top of that. The data now shows that nearly 60% of the borrowers who received help fell behind again within a year.

That’s the financial equivalent of letting someone retake the same test again and again and being shocked when they still don’t pass. Compassion quietly turned into enabling.

So in 2025, the FHA changed course.

They shut down the special COVID programs. They ended FHA-HAMP. They rewrote their entire loss-mitigation process. Now, a borrower gets one true home-retention option every 24 months, and they have to prove they can actually afford the payment before it becomes permanent. No more endless limbo. No more automatic extensions. The agency estimates these changes alone will save roughly $2 billion.

This doesn’t mean foreclosures are about to explode. It means decisions will be made faster. Assets will either stabilize or move on. Historically, that kind of clarity leads to cleaner cycles, not chaos.

Yes, delinquencies have risen. Serious late payments are around 4.5%. That number sounds alarming until you look at what actually happens when loans fail today.

Losses are far smaller than they used to be. Decades ago, when a loan went bad, lenders often lost around half the property’s value. Today, the loss is closer to 22%. Homes sell faster. Prices are higher. Fewer properties sit vacant and deteriorate. The system absorbs stress instead of letting it rot.

Pressure is real. Destruction is not.

The FHA is also looking much more carefully at where risk actually stacks. One weak number doesn’t usually break a deal. Problems happen when low credit, high debt, and minimal equity all pile on top of each other. That’s when the tower starts to wobble.

Using more realistic measurements, about 8% of FHA loans show this kind of layered risk. Not the whole market. Not even close. Just specific pockets where conditions are tight and margin for error is thin.

And speaking of thin margins, today’s borrowers are a strange mix of stronger and weaker at the same time.

Credit scores are higher than they’ve been in years. People are, on average, more responsible with their credit. But they’re also carrying heavier loads. The average debt-to-income ratio today is around 45%. Twenty years ago, it was closer to 37%.

Homes cost more. Rates are higher. Taxes are higher. Insurance is higher. Everything is higher. So while borrowers are more disciplined, they have less room to absorb a shock. Small disruptions matter more than they used to.

Finally, the FHA asked the ugliest question imaginable: what if the worst happened again?

They reran scenarios that looked like the Great Recession, with falling prices, high unemployment, and no quick recovery. Even in those stress tests, the reserve fund stayed more than double the legal minimum.

In other words, the system bends, but it doesn’t break.

That’s also why the FHA could lower mortgage insurance premiums. Not because of politics. Not because of optimism. Because the math said they could.

So what does all of this mean for investors?

This report isn’t a crystal ball. It’s a map. It shows where stress is building, where risk is concentrated, and how policy decisions affect timing. It reminds us that defaults today don’t automatically mean collapse, and that capital buffers matter far more than headlines.

The FHA isn’t pretending problems don’t exist. They’re measuring them, pricing them, and backing the system with a very large pile of cash.

Anyone waiting for a carbon-copy of 2008 may be waiting a long time.

The smarter play is to watch where pressure actually forms—and be ready when opportunity shows up.