WASHINGTON - Mortgage bankers and mortgage insurers are expected to square off today over the future of the Federal Housing Administration's home loan insurance programs.

Mortgage banking companies, which originate most FHA loans, want to raise the size of loans eligible for the program and to roll back premiums.

But private insurers, which compete with the government fund, say they will resist any attempts to liberalize the program.

Each side is planning to make its case at a hearing before the House Banking Committee's housing subcommittee. The panel has oversight responsibilities for the FHA.

"There has been an endless debate between mortgage bankers and private mortgage insurers as to whether you need an FHA program, and if you do, how to define its business purpose and strategy," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America.

FHA loans typically have lower down payments and are made to low- and moderate-income people. Lenders sell most of the loans into the secondary market, bundled as Government National Mortgage Association securities.

In evaluating the benefits and risks of the program, members of Congress can point to a new, upbeat report from Price Waterhouse. The accounting firm found that the strength of the insurance fund increased dramatically in fiscal 1992.

In the Black

The report says the "economic value" of the fund grew by $2 billion, to $1.4 billion. This marked the first positive value for the fund in the three years Price Waterhouse has conducted the study. Economic value is defined as premiums minus default losses and other expenses.

The firm also found that the fund's capital ratio, defined as economic value divided by total loans insured, is now 0.43%. That falls short of the 1992 target that Congress mandated in 1990. But the report projects that the fund will meet Congress' goal by the year 2000.

The health of the single-family insurance fund stands in stark contrast to the FHA fund for multifamily housing. A study by Coopers & Lybrand in April found that fund stood to lose up to $11.9 billion as apartment building owners defaulted on their loans.

But interpretations of the Price Waterhouse report are sure to vary widely today as mortgage bankers and mortgage insurers testify.

Two broad issues are up for grabs: Should Congress roll back the premium rises it enacted in 1990, and should the loan limits be raised so that FHA insures more expensive loans?

The mortgage bankers are expected to argue that the strengthening of the fund can continue only if FHA originations are spurred. FHA loans accounted for just 6% of all new mortgages last year, down from 8% in 1991.

In its testimony, the mortgage bankers' group will attribute the decline to the program's premium structure, arguing that it is uncompetitive with premiums of private insurance.

Specifically, the group will ask Congress to phase out the upfront premium of 3% adopted in the mid-'80s as a revenue-adding measure and charge only an annual premium of 0.5%.

The group is also expected to advocate raising the minimum size of FHA loans to diversify risk. On this front, the bankers' group is getting some support from the Department of Housing and Urban Development. The agency is proposing to raise the maximum loan size in highcost areas to about $172,550 from the current $151,875, according to industry sources.

The mortgage group's ideas infuriate private mortgage insurers. "I guess what I find annoying [is the] premise that lower-income people ... somehow don't value the house or their credit obligations. That's just ridiculous," said Suzanne Hutchinson, executive vice president of the Mortgage Insurance Companies of America.

Ms. Hutchinson says the most important finding is the fund is still not at the level of strength mandated by Congress.

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