Declining house prices are undermining the performance of the Federal Housing Administration (FHA) reverse mortgage program, the Obama administration warned.

The Home Equity Conversion Mortgage (HECM) program is expected to face a $798 million budget shortfall in fiscal year 2010. Its budget proposal blames the decline in house prices.

The same states with large concentrations of seniors that use the FHA HECM program — Florida, Arizona, California and Nevada — are the same ones that have seen the biggest house prices declines over the past two years.

However, the FHA single-family program is projected to generate a $1.7 billion budget surplus that can cover the HECM shortfall.

The President's budget estimates that FHA lenders will originate $300 billion in single-family loans in FY 2010, up from $285 billion in FY 2009, which ends Sept. 30. 2009. But HECM originations are projected to be $30 billion in FY 2010, unchanged from this fiscal year.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.