A top Fannie Mae official is proposing that the Federal Housing Administration back off from the middle-class market, and target its home loan guarantees "narrowly" to low-income and moderate-income households.
The government program competes with the secondary-market agencies for loans to first-time homebuyers, but insures loans with more-liberal underwriting guidelines.
In a report earlier this year, Fannie Mae complained that it was hamstrung in inner cities by FHA's strong presence there.
Larry Dale, the affordable housing chief at Fannie Mae -- the Federal National Mortgage Association -- aired this view in Detroit recently at a forum organized by the Department of Housing and Urban Development to debate the FHA's structure.
According to minutes of the meeting, Mr. Dale argued that "under this scenario, the FHA, would not necessarily be active in all regional and local mortgage insurance markets at all times."
Mortgage bankers and consumer advocates were quick to attack the proposals.
"Fannie's eyeing the business of FHA," said Chris Lewis of the Consumer Federation of America. "The big kid on the block is hungry."
"We take a different view of the now and future role of FHA," said Warren Lasko, executive vice president of the Mortgage Bankers Association. "It's our view, and a strongly held one, that for FHA to be successful it can't just be active at the margin of the market."
"Until Fannie's doors open wider, for example, with 3% [down payment opportunities] to first-time homebuyers," the FHA's role must not be curtailed, Mr. Lewis added.
Behind the scenes, the mortgage bankers are said to have launched vigorous protests against Fannie's statement, fearing that this is another example of the agency's efforts to expand its considerable market power.
Mr. Dale's comments come as the Clinton administration engages in a bruising fight in Congress to the expand the FHA's scope and its market share, which has shrunk radically in recent years.
The administration has sought congressional authority to insure larger loans, up to 85% of the $203,150 cap on loans purchased by the secondary-market agencies.
Mortgage insurers and the California League of Savings Institutions have strenuously opposed the increases. On the other side, mortgage bankers have supported them.
Fannie Mac spokesman David Jeffers said the agency has "not taken a position" on the issue.
It is uncertain whether the administration will win the increases it wants. The House has approved them, but the Senate has so far voted for smaller increases.
Meanwhile, Fannie Mac downplayed Mr. Dale's comments.
"Our general view is, we don't know what all the fuss is about," said Mr. Jeffers. "That's been Larry Dale's point of view that he's articulated many times." He said Fannie does not expect to lobby actively against the administration.
The FHA itself is not troubled by Mr. Dale's comments, according to Sarah Rosen, special assistant to the commissioner.
