If you thought the $150-billion savings and loan bailout was a whopper, just wait. The Federal Housing Administration’s failing mortgage insurance program could triple the taxpayers’ ante. Established during the Depression to increase the access of low-income families to home loans, the FHA insures mortgage loans made by commercial institutions. With FHA insurance, borrowers can make lower down payments, borrow greater amounts, and pay lower interest rates than they could with regular mortgages.

But recent real estate crashes in the Southwest and elsewhere have depleted the agency’s insurance funds and left it holding numerous foreclosed properties that it can sell only at a loss. Unless the economy rebounds dramatically in those regions, the FHA may need a taxpayer bailout totaling hundreds of billions of dollars.

A September 1989 General Accounting Office audit revealed that FHA insurance funds lost $4.2 billion last year; with a current deficit of $2.9 billion, the funds’ reserves are exhausted. Homeowners still owe over $300 billion to the feds.

The FHA has more than 289,000 foreclosed properties in its possession and expects to take over 90,000 more this year. Since insurance funds are depleted, the FHA must rely on tax dollars to repay foreclosures. Housing trends don’t look promising. In 1979, 2 percent of FHA mortgages were over 60 days delinquent; by the end of 1988, that figure increased to 5.5 percent.

A new piece of legislation could aggravate the problem. Cosponsored by Sens. Alan Cranston (D.-Calif.) and Alfonse D’Amato (R.-N.Y.), the National Affordable Housing Act would raise the ceiling price on houses that qualify for FHA loans from $101,250 to 95 percent of the median value of a home in a given region. For example, in Orange County, California, where the median is $270,000, home buyers could get FHA financing for houses costing as much as $256,500. (As part of a separate spending bill, the Senate increased the ceiling from $101,250 to $124,875.)

The bill would reduce the down payment required for new home buyers from 5 percent to 3 percent. The bill defines a new buyer as someone who has not owned a home in the last three years.

Potential homeowners who lack the cash to make large down payments are greater risks to default. One can also argue that a family earning $75,000 a year who can’t borrow money privately for a home should not be entrusted with a taxpayer-guaranteed loan.