The financial health of a top U.S. mortgage program worsened this year, which could make it harder for affordable-housing advocates to persuade a key government agency to cut the fees it charges lower-income borrowers.

The capital reserves of the Federal Housing Administration fell by about $2 billion to $25.6 billion for the year ended in September, according to a U.S. Department of Housing and Urban Development report. The decline means the FHA is barely meeting the statutory minimum for money it must set aside to cover soured mortgages.

The FHA doesn't make loans. It sells insurance, paid by borrowers, on mortgages that can have a down payment of as low as 3.5% and a credit score of 580. The program is commonly used by first-time home buyers and other borrowers with little wealth. Should borrowers fail to make their payments, the insurance makes lenders whole.