In the last couple of years, FHA has seen their market share go from about 3 percent of loans that were originated to about 30 percent today.
When you take out your FHA loan, you are required to pay an Up Front Mortgage Insurance premium of somewhere between 1.75% of your loan amount to 3% of your loan amount depending on which type of FHA loan you are getting (FHA Secure -- which almost no one got before it was discontinued was the highest UFMIP and "normal" FHA loans are 1.75%).
What happens to that money? It is taken and held in an escrow account and held as an insurance premium in case you default on your loan. For borrowers who paid the UFMIP and took out an FHA loan prior to December 8, 2004 if the loan is paid off due to refinancing or that you sold your house, the money that is left in your UFMIP account is rebated back to you in the form of a check.
For those people who took out an FHA loan and paid UFMIP after December 8, 2004 if you refinance or sell your home, the money that you paid in to the UFMIP account is not refunded back to you.
What happens to that money?
Any excess money that is a result of people paying off their FHA mortgage through refinancing or selling their home for FHA loans taken out after December 8, 2004 is sent back to the Treasury rather than kept in the FHA fund.
How much money are we talking about? Somewhere over $14 billion since 2001.
So - if indeed it is decided that FHA "needs a bailout", someone might want to consider changing it so that the excess money that is collected in the form of UFMIP is kept in the FHA coffers rather than sending the excess to the Treasury.
Or -- perhaps a better idea -- give it back to the people who paid it as an insurance premium if it wasn't used? That is how "normal" insurance companies work usually.