The real estate market is rebounding in the Bay State amid a surge in sales and rising hopes for a turnaround in battered home prices. But instead of starting to wind down its massive intervention into a now healing market, one major federal agency is actually expanding its footprint into higher-end housing deals.

The Federal Housing Administration (FHA) is increasingly insuring upscale homebuyers seeking homes a cut above the local median price, with the Boston area a leader in this disturbing trend, according to a new report from the George Washington University School of Business.

The report raises some disturbing questions, including whether a federal agency formed in the 1930s to help families of modest means get into the housing market should now be catering to well-heeled buyers. FHA is now insuring mortgages up to $523,750 in the Boston area, with the limit on Nantucket a staggering $729,750.

"There is no obvious social purpose achieved by encouraging purchases of homes with $700,000 mortgages and less than 5 percent down payments," the report argues.

Helping The Wrong Buyers

The FHA has made its greatest inroads among higher-income borrowers in Norfolk County, which covers a vast swath of wealthy suburbs south of Boston from Brookline down to Wrentham.

As many as 42 percent of FHA loans in the county are going to borrowers making more than 115 percent of area median income. Given the median annual wage weighs in at around $90,000, this means a big chunk of loans are going to borrowers making at least six figures, or in some cases, more than $120,000 a year.

The FHA is also going uptown in Suffolk, Middlesex and Essex counties, which includes the city of Boston and the northern and western suburbs. In all three counties, anywhere from 29 percent to 32 percent of FHA loans are going to those making more 115 percent of area median income, or roughly six-figures.

Nationwide in 2010 – the last year tracked in the study – 30 percent of FHA loans went to buyers making at least 115 percent of the median income for their area.

And along with catering to well-off buyers, the FHA is also increasingly insuring homes that are also well above the median.

Here’s a pretty telling stat: 54 percent of homes sold with FHA loans in 2011 were priced at 25 percent above the median sale value of the local market, according to proprietary FHA data cited in the report. That’s up from 15 percent in 2007, according to the GWU study.

A New Gamble

So what in the world is happening here?

It seems like just another case of a market rescue gone badly awry.

The FHA was a key part of the multi-trillion-dollar federal intervention in 2008 and 2009 that helped prevent a global economic collapse and kept the housing market from completely shutting down.

But with the economy and market largely stabilized, the FHA now appears to be moving into new areas. In fact, it looks like a risky gambit by the agency to offset some of the losses it took during that dark fall and winter of 2008/2009, the report warns. Taxpayer-funded, the FHA is now looking at a potential bailout by the U.S. Treasury that could rise into the tens of billions of dollars

But needless to say, there are big problems with this approach, both ethical and practical.

First, the FHA was founded with the express purpose of – and has spent decades focused on – giving first-time buyers and families of modest means a leg up into the housing market, not helping those who already have a few dollars in their pockets.

But the second reason is more practical: The FHA’s new focus on more upscale borrowers has the potential to backfire badly. Given the agency’s history, it is a part of the market that the FHA does not have a lot of experience in.

And so far, it has been the bigger loans, not the more modest mortgages, which have been more likely to sour. Approximately 20 percent more likely, the report concluded

However, the FHA’s expansion into the high-end of the housing market illustrates how difficult it will be to scale back the massive involvement of the federal government in the housing market.

Directly and indirectly, trillions of dollars are at play here, from insuring mortgages to the Federal Reserve’s complex global financial maneuvers aimed at keeping money cheap and interest rates – including mortgages – at historic, rock-bottom levels.

We are in so deep, frankly, it’s hard to know where to even begin climbing.

That said, getting the FHA to shift its focus away from high-end borrowers and back to those of more modest means seems like a relatively easy place to start.

And, happily, it also happens to be the right thing to do as well.