The Federal Housing Administration (FHA) remains concerned about home prices, saying they could overturn possible green sprouts of recovery.

In a report submitted to Congress, the government agency said the mortgages it backs improved in performance but slides in homes prices could be a problem. The report compares the results of a study on FHA’s loan portfolio from October last year to June this year and the projections of an independent audit.

The independent audit, released late last year, projected that if worst comes to worst, taxpayers may have to deal with losses. Auditors said that as of September 30, the FHA’s reserved funds for unexpected losses had gone to dangerously low levels.

However, the new report turned out to be more optimistic. The FHA said its loan portfolio fared better than expected from the time the projections were released. It was mostly due to the addition of more creditworthy borrowers and the removal of fraudulent lenders. As a result, the FHA netted an additional $446 million from the nine months that ended on June 30. That means the money that went in was more than what it paid out.

The FHA also told Congress that home price drops could affect this development. “That’s the overarching caution. We have to think about what loan performance will look like based on what houses’ prices will be doing going forward,” said Bob Ryan, the agency’s chief risk officer.

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