The Federal Housing Administration, the agency that insures home purchases made with down payments as small as 3.5 percent, may create another lending crisis, Toll Brothers Inc. CEO Robert Toll said.

"Yesterday's subprime is today's FHA," Mr. Toll said yesterday at a New York conference for builders sponsored by UBS AG. "It's a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money." Toll Brothers is largest U.S. luxury homes builder.

The FHA's insurance reserve ratio fell to 0.53 percent, the lowest level in history, and more steps are needed to shore up the agency that guarantees one of every five single family loans, Housing and Urban Development Secretary Shaun Donovan said Nov. 12.

While the insurance fund's capital ratio is at an all-time low, Mr. Donovan said those who say FHA is the next subprime-mortgage crisis are "dead wrong." The quality of the loans FHA insures is "actually very good," Mr. Donovan said.

FHA's total reserves are more than $31 billion, giving it an overall capital resource ratio of 4.5 percent, according to statement by FHA Commissioner David Stevens.

The 0.53 percent net capital loan insurance ratio takes into account projected losses and is the yardstick Congress uses to determine the health of the fund. Congress requires the FHA to maintain a loan reserve ratio of at least 2 percent to protect the insurance fund from default.

The FHA said 456,000 of its loans, or 8.2 percent, were in default as of September. That was up from 5.6 percent in September 2008.

The default rate for loans tracked by the Mortgage Bankers Association was a record 9.24 percent for the three months through June, the most recent period for which data is available. That was up from 6.41 percent a year earlier.

FHA loans accounted for about 8 percent of the mortgages Toll Brothers closed in the past quarter, Mr. Toll said. About 80 percent of the company's financing is loans guaranteed by Fannie Mae or Freddie Mac, he said. Those government-supported agencies require larger down payments and better credit than loans insured by the FHA.

Toll Brothers has seen strong sales at its urban high-rise developments in New York City, Jersey City and Philadelphia, Mr. Toll said.

"We started doing over $1 million product even in Hoboken and Jersey City," he said. "We expect to expand to Washington, D.C., and perhaps some other strong markets."

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