Federal housing programs are a big, fat target to budget-cutters in the Republican-led Congress, and some lenders who work with the Federal Housing Administration fear that House Speaker Newt Gingrich's forces may trash one of the agency's most effective programs along the way.

That's Tide 1, a home improvement loan program that permits single-family loans up to $25,000 with no equity. FHA insurance, which is funded by lender-paid premiums, permits more liberal underwriting than do most home improvement program.

[Expanded Picture]While some FHA housing programs have long been deemed rife with abuses and inefficiencies, Title 1 has been a success story, insists John W. Ballard, president and chief executive of HOME Inc., a home improvement lender in Austin, TX. Title 1 has produced a surplus in 9 of the last 14 years, says Ballard, adding, "It's the multifamily side that produces the horror stories."

Yet the FHA's single-family loan programs (not Title 1) have made enemies among community activists, who should be their strongest advocates. Calling FHA "the silent bomb," the National Training Information Center, a Chicago-based nonprofit, claims that mortgage companies commonly use the 100% guarantee feature to originate mortgages to unqualified borrowers, then foreclose after the loan has been sold in the secondary market, in certain neighborhoods, concentrations of such foreclosures have created pockets of abandoned housing, NTIC says.

Such criticism would seem to hone the budget-cutters' knives, and the Clinton Administration isn't waiting for those knives to appear. It has called for separating FHA from the Department of Housing and Urban Development, and dividing the single-family and multifamily efforts into distinct program. HUD Secretary Henry Cisneros says that would transform FHA into "a results-oriented, financially accountable operation." In other words, more like business, less like government.

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