The Federal Housing Administration may have tried to hide the magnitude of losses it could face under the most severe economic shock, according to a congressional committee.
The findings by the committee, in a letter dated May 29 and released Tuesday, could reignite the debate about whether the FHA needs to play a smaller role in the housing market, and if it should tighten the standards on the loans it insures in order to avoid losses.
An independent audit last year by Integrated Financial Engineering of the cash-strapped FHA found its traditional mortgage business had a projected deficit of around $13.5 billion. The agency as a whole had a projected deficit of $16.3 billion.
That audit launched speculation the FHA, which insures about a third of all U.S. mortgages, would need taxpayer funding for the first time in its nearly 80-year history. It also fueled a long-standing debate on the government's role in the housing market.
(Read More: To Stem Losses, FHA Mortgages Get More Expensive)
The House Committee on Oversight and Government Reform, chaired by Republican Rep. Darrell Issa, found the audit excluded results that showed the FHA's traditional mortgage program would be $115 billion in the red under the worst economic assumptions.
These assumptions mirror the stress tests used by the Federal Reserve to examine how banks would weather a hypothetical major market shock. The FHA is not required to use these assumptions, but the auditor may have prepared them anyway, according to emails released by the committee.