Housing, bond proponents should not expect too much in 1994.

WASHINGTON - The head of the Federal Housing Administration, Nicolas Retsinas, offered a sobering assessment last week of the prospects for housing legislation next year and for proposals to ease curbs on tax-exempt bonds.

Retsinas had two messages for the local housing agency directors he spoke to in New York. First, Congress isn't going to be amenable to developing new housing programs until the FHA cleans up its mess. The mess is the overwhelming number of federally insured loans the agency is stuck with because of past program failures.

His second message was that proponents of tax-exempt bonds aren't going to have much luck getting Congress to approve beneficial but costly changes in the tax code until the federal budget picture gets a bit brighter.

Retsinas was able to deliver all this bad news and still get a warm reception from the housing directors because he used to be one of them. Before signing on with the Clinton administration in the spring, Retsinas was the executive director of the Rhode Island Housing and Mortgage Finance Corp.

On the FHA's housing insurance front, Retsinas inherited a near disaster. When he arrived in Washington he discovered that $12 billion, or more than a quarter of the federal housing insurance in force, was "at risk." This means that a lot of loans insured by the FHA were on the way to default. That doesn't include the billions of dollars in nonperforming insured loans that have been assigned to the Department of Housing and Urban Development over the past several years.

HUD is planning to sell off its defaulted loans, and Retsinas wants to move forward as quickly as possible. He believes that until that portfolio is cleared out, it's going to be hard for HUD to get Congress to pay attention to any proposals for new initiatives.

"This is not just a financial issue, this is a programmatic issue," Retsinas said. "It's more than just cleanup. It's trying to restore and rebuild the foundation by which we will proceed and move forward in the affordable housing arena."

One of the new programs Retsinas has in mind would allow state and local governments to share the insurance risk on housing loans with the federal government. HUD has the go-ahead for a two-year pilot program, but for risk-sharing to become permanent the agency will have to go back to Congress and ask for authorization.

For a few moments during his speech in New York, Retsinas took off his HUD official's hat and put on the hat of the housing bond advocate he had been as head of the Rhode Island housing agency. The change of hats led to his second message about the difficulty of passing tax-exempt bond proposals.

Retsinas told the local housing directors they had performed an amazing feat in persuading Congress to grant permanent extensions of the tax exemption for mortgage revenue bonds and the low-income housing tax credit. The victory this year was particularly stunning, he said, because there appeared to be no money in the federal coffers for either initiative.

"I think what you did was impossible to do," he said. "I'm still not sure how it happened."

For all their elation, Retsinas said state and local housing officials should also be breathing sighs of relief. Had they missed the opportunity for permanent extensions this year, it may not have reappeared for a long time.

"I'm not sure the window will open up for that kind of program again in that particular way," he said.

Retsinas did not specifically mention the various proposals that municipal bond proponents have been urging Congress to pass, such as an increase in the small-issuer arbitrage rebate exemption and an easing of the limits on bank deductibility. But his message was still clear enough: Initiatives like those will be hard to come by in the next few years.

The big obstacle, he said, is going to be the federal budget. "The Congress is appropriately focusing on the deficit," Retsinas said, urging the local housing officials to "understand what that means to those of us trying to reach out to people in need. We're going to have less tools, less resources to do that."

The picture Retsinas painted was of a Congress full of members trying to outdo each other in the severity of their deficit cut demands. "The only argument you hear in Congress is who's going to cut more. There are very few advocates left for more [federal spending]," he said.

Retsinas wasn't all doom and gloom. He was excited about HUD's risk-sharing program and confident about the FHA's ability to clear out its portfolio. But in terms of what the housing advocates and bond proponents can expect out of Congress in the short term, Retsinas' message was a sobering one: Keep your expectations low.

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