"What FHA did was lever up," Gyourko says. "They increased their insurance guarantee portfolio almost four times. They've increased their capital by almost nothing."
But while FHA's projections might be too rosy, Gyourko's might be too bleak, some say. Even Gyourko himself concedes there is little reason to expect an extreme crisis for FHA in the next year or so. "That would take a huge leap in defaults and almost immediate losses that no one is anticipating," he wrote in his working paper "Is FHA the Next Housing Bailout?"
The truth is probably somewhere in the middle, most experts say. While FHA might be severely undercapitalized for the size of its liabilities, the losses the agency would have to sustain to go under would be massive.
"Yes, there is such a scenario, but frankly for that to happen the market would have to crash so badly, we would have other things to worry about than bailing out the FHA," says Tom Geurts, visiting associate professor of real estate and finance at the George Washington University in Washington, D.C. "[Gyourko] is right, but the scenario he paints is too bleak."