"They can't even track their data correctly," Caplin said in an interview. "Not knowing how to measure the performance of your borrowers is tragic and profoundly wrong."

The White House submitted a budget plan to Congress this year that would have provided the FHA as much as $688 million from the U.S. Treasury, the first bailout in the agency's 78- year history. The money wasn't needed because the FHA will get almost $1 billion from the government's $26 billion settlement with the five biggest U.S. mortgage servicers over alleged foreclosure abuses, according to Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, which oversees the FHA. Mortgage servicers collect monthly payments and manage the foreclosure process.

Business Tripled

As the FHA tripled its home-loan insurance to $1.1 trillion since 2007, defaults and expected defaults drained its cash reserve below the 2 percent legal threshold the last three years. The reserve is a cushion to offset possible future losses and is held in addition to $29 billion the agency has set aside to pay expected claims.

Caplin and others say the FHA's plan to grow out of its cash squeeze amid rising property values won't work. Taxpayers will be on the hook for between $50 billion and $100 billion "over many years," says Joe Gyourko of the University of Pennsylvania's Wharton School.

FHA officials dispute that conclusion, and note that they've taken steps to improve the credit quality of borrowers and to increase premiums and fees. The agency's role in U.S. housing grew as private mortgage insurers retreated after the credit contraction of 2008. The FHA, created in 1934 to help low- and moderate-income people buy homes and to stabilize credit markets, insured 30 percent of U.S. house purchases last year, up from 4.5 percent in 2006. It charges lenders and borrowers a fee to guarantee that mortgages will be paid.

"To be clear, FHA is not broke," Galante told a House Financial Services subcommittee hearing on Feb. 28.

Premium Increase

To help bring in more money, the FHA will increase the premiums it charges most borrowers by 0.10 percentage points, starting April 9. For borrowers with homes worth more than $625,500, the hike will be an additional 0.25 percentage points, as of June 11. Upfront fees will also rise, to 1.75 percent of the loan from 1 percent, effective April 9.

President Barack Obama said Feb. 1 he wants to reduce rates on FHA refinancings for about 3.4 million eligible FHA homeowners. Their upfront fee would drop to 0.01 percent from about 0.55 percent and their annual premiums would be cut to 0.55 percent from 1.2 percent.

Net Effect