HUD official: Congress should avoid 'federalization of mortgage industry'.

The Federal Housing Administration should remain a "good safeguard against foreclosure," and an FHA modernized by Congress would be able to help an even greater number of homeowners, but lawmakers should avoid a broader "federalization of the mortgage industry," noted the acting head of HUD.

During remarks at the Federal Home Loan Banks Annual Directors Conference in Washington, D.C., in late April--before the House approved FHA reform legislation--HUD Deputy Secretary Roy A. Bernardi noted that the number of single-family mortgages endorsed by FHA has "effectively doubled" over the last year.

"This is the time for vision and prudence. We must give the American people real solutions to the housing crisis, not multiply problems," said Bernardi. "The Bush administration favors responsible, specific efforts to save homeowners and allow FHA to be a central part of any lasting solutions."

As reported earlier, HUD has rolled out its own mortgage-assistance proposal through expansion of HUD's FHASecure program. Under the new plan, FHA would have the added flexibility to insure more mortgages, including those for borrowers who were late on a few payments and/or received a voluntary mortgage principal write-down from their lender.

In August 2007, FHA modified its refinancing program to help creditworthy homeowners who missed payments after their teaser rates reset. Since then, more than 170,000 families who are current and past due on their home loans have refinanced with FHASecure, said Bernardi.

In the first quarter of 2008, FHA endorsements totaled more than 237,000--a 100 percent increase over the same period last year. Homeowners refinancing from the subprime market to FHA are saving approximately $400 a month on their new mortgages, according to Bernardi.

"FHA has proven to be a good safeguard against foreclosure for those already insured with FHA. These loss-mitigation efforts have been estimated to have saved hundreds of thousands of families from foreclosure," said Bernardi. "In fact, 65 percent of FHA borrowers who fall into serious default are able to avoid foreclosure because of loss-mitigation actions. That is a figure I wish we could duplicate or surpass outside FHA."

However, Bernardi warned that even as the Bush administration and Congress agree that FHA is a central part of any lasting solution, Congress should be careful not to inflict long-term harm while enacting short-term solutions.

"There are some who believe that the federal government must become more intrusive, must take over functions left to the private sector. Mistakenly, some believe that there is no other choice than government intervention through bailouts or taking over the mortgage industry," said Bernardi.

"Americans don't want to pay for the risky financial behavior of others. And they don't want to make the federal government the lender of last resort, with the private sector dumping bad loans on FHA and the taxpayers themselves. Our citizens do not want us to federalize the housing market. We must not harm our economy through solutions that further erode the foundation of the nation's housing market, hurt homeowners who are meeting their mortgage obligations or prolong the correction," Bernardi added.

HUD predicts this FHASecure expansion would help about 500,000 families refinance into prime-rate FHA-insured mortgages by the end of 2008.