Nearly 40% of existing homes purchased in November used a Federal Housing Administration (FHA)-insured mortgage, according to a National Association of Realtor (NAR) survey of 3,161 real estate agents' perceptions of conditions on the ground in residential real estate. And while this trend may not change immediately into 2010 lending, the FHA is recently defending the program, saying that it is well enough capitalized to avoid any major losses in case of surging defaults. For the NAR survey, president Vicki Cox Golder called FHA a critical part of American housing, especially for those trying to get on the housing ladder. “FHA helps provide affordable mortgage financing to homeowners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” she said. Despite the NAR accolades, earlier this month, Department of Housing and Urban Development secretary Shaun Donovan was before Congress defending the FHA, and ensuring the House Financial Services Committee that the single-family insurance program is “not the next subprime.” The increase in demand caused the capital reserve ratio at the FHA to drop below the Congressionally mandated 2% minimum, leaving HUD and the FHA scrambling to ensure the FHA program’s soundness. A number of options are up for consideration, including an increase to lender accountability, raised insurance premiums, minimum FICO requirements and minimum required down payments. Last week, HUD issued a ruling that borrowers are ineligible for a new FHA mortgage if they pursued a short sale agreement “to take advantage of declining market conditions” or to purchase another property at a reduced price. Other results from the Realtors confidence index (download here) showed first time homebuyers accounted for 51% of all transactions and are actively competing with investors for distressed properties, which accounted for 33% of sales. Distressed properties aren’t just affecting transaction price, however. Many survey respondents indicated the presence of distressed properties is influencing buyers’ perceptions of other homes for sale and many buyers have pricing expectations that treat every property as if it were in foreclosure. Write to Austin Kilgore.