By Patrick Rucker

WASHINGTON, May 7 (Reuters) - A deep housing downturn has depleted reserves at the largest U.S. mortgage-aid program but officials should be able to weather the current crisis without more taxpayer cash, the government's top housing policy-maker said on Thursday.

A wave of foreclosures is draining resources at the Federal Housing Administration (FHA) which guarantees payments on millions of home loans.

Under federal law, the FHA must hold capital reserves of at least 2 percent of the value of outstanding mortgages. While the fund has always been self-sustaining, the current reserves have been brushing against that level and Congress may yet have to rescue the program if losses continue to climb.

President Barack Obama's housing chief said he was cautiously optimistic that the fund will not see its reserves dip to dangerously low levels.

"I feel comfortable that the likely outcome is that we remain above the two percent but I don't think that is assured by any means at this point," said Shaun Donovan, the Housing and Urban Development Secretary.

Now that Wall Street has turned its back on mortgage finance and banks are reluctant to lend in a declining market, the FHA is processing about 30 percent of new home loans.

Those new mortgages have strong underwriting and will help cleanse the FHA books, Donovan said in a conference call to reporters.

"Loans made during fiscal year 2010 are likely to be made at a time when we can expect house prices to begin rising again, and to ensure safety and soundness of those loans," he said.