(Bloomberg) The Federal Housing Administration won't be able to earn its way to financial health this year, increasing the chance it will need a taxpayer bailout, based on an updated forecast from Moody's Analytics, which provides the agency's housing-market analysis.

The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on "robust growth" in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years, according to its annual report to Congress, filed in November.

It won't get that growth until 2014, according to the latest outlook from Moody's Analytics. Prices will fall 3 percent in fiscal 2012 before growing 1.4 percent in 2013 and 6.5 percent in 2014, said Celia Chen, a Moody's Analytics housing economist who updated her estimate after providing the housing-market forecast for the FHA's annual actuarial report.

"The FHA's economic projections are surreal," said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency's finances. "They must believe there will be very few readers in Congress able to critically review such a complex report."

In their annual review, the FHA's actuaries -- risk analysts who specialize in insurance -- used earlier projections that called for increases of 1.2 percent in 2012 and 3.8 percent in 2013. The agency, which backs mortgages that cover as much as 96.5 percent of a home's value, is sensitive to changes in home prices. While the insurance fund's 2012 outlook called for net growth of about $9 billion, that will drop if home prices decline, according to the FHA's November report.

By law, the fund is supposed to hold 2 percent of its portfolio in reserve; as of Sept. 30, it held only 0.24 percent, or $2.6 billion, according to the report.

'Best Available Data'

While the FHA issues an annual report and hasn't updated its outlook since the new Moody's forecast, Carol J. Galante, the acting FHA commissioner, says there's no indication that home prices will fall to a level where the agency would need help from the U.S. Treasury.

"The independent actuaries rely on the best available data that most closely reflects our portfolio to estimate how the market will behave in the future," Galante said in a statement yesterday. "All things considered, we're doing everything we can to remain in positive territory and to avoid needing additional support from the Treasury."

Deeper Than Predicted

Losses will be deeper than the FHA predicts, in part because the agency uses a home-price index that excludes distressed sales, Caplin said. Distressed sales, which refer to sales at prices lower than what borrowers owe on their mortgages, will make up 40 percent of transactions this year, Chen said. Excluding them produces a rosier forecast on sale prices and may mean the agency is underestimating potential claims, Caplin said.