WASHINGTON -- The home mortgage industry is girding for a sweeping restructuring of the Federal Housing Administration, long a pillar of the business.
President Clinton is expected to announce as early as tonight a plan that could eventually convert the mortgage insurer into a "government-controlled corporation" that would work closely with private firms.
The plan, which is a seen as a response to Republican pressure to scale back the federal government, could give a big boost to private insurers and the government-sponsored secondary market agencies -- Fannie Mae and Freddie Mac.
But housing lobbyists and mortgage bankers fear that the plan will lead to higher costs and tighter credit standards for lowincome borrowers, crimping demand for loans.
"People who use the FHA to reach the first rung of the homeownership ladder would have to step higher, and some would be left behind as a result," said Brian Chappelle, staff vice president of the Mortgage Bankers Association of America.
The issue gained new urgency Wednesday after The New York Times reported on a planned "revolution" in the mortgage agency.
Exactly how sweeping the changes may be is a subject of debate in Washington and among lenders. Some maintain that the agency will remain directly involved in insuring individual loans -- a course advocated by Henry Cisneros, secretary of housing and urban development. But others contend the agency will confine itself to risk-sharing agreements with private industry.
The FHA plays a crucial role in mortgage finance. This year, the agency is expected to insure about $100 billion worth of new mortgages, or 13% of the entire market. Most of the loans are originated by mortgage banking companies and sold into the secondary market as Government National Mortgage Association securities.
Mr. Chappelle said his group understands that the administration will propose that the FHA be converted into a government-owned corporation, similar to Ginnie Mae, that runs itself like a private business.
The FHA would continue to insure single-family loans. But it would also get broad authority to share the risk on some higher-risk loans with private investors, such as the Federal National Mortgage Association, or Fannie Mae, and Federal Home Loan Mortgage Corp., or Freddie Mac, as well as private mortgage insurance companies.
Even before word of the Clinton plan surfaced, housing lobbyists fretted that Congress would seek to scale back the FHA.
Republicans in Congress have long been wary of the risk the government assumes through the FHA; they have been allied with private mortgage insurance companies, which compete with the FHA.
Suzanne Hutchinson, executive vice president of the Mortgage Insurance Companies of America, said her group would lobby to convert the FHA into an agency that insures loans only for first-time and low-income homebuyers.
It will also fight to make sure that the FHA shares risk on these loans with private mortgage insurers and investors and does not back loans with the full faith and credit of the government.
"It's going to be a long process," said Ms. Hutchinson. "Whatever has been decided [by the administration] has to go through the formal legislative process."
The Federal Housing Administration would exit the primary mortgage insurance market altogether. A number of loans that previously would have been insured by the FHA would instead flow through Fannie Mae and Freddie Mac, after being stamped with a private-insurance guarantee.
The FHA, meanwhile, would concentrate on "high-risk" loans -- often to first-time homebuyers making low down payments. The agency would share the risk of these loans with Fannie Mae and Freddie Mac.
Under this scenario, Fannie Mae, Freddie Mac, and private insurers all would gain business. Reflecting this, the stocks of the secondary market agencies rose sharply Wednesday.
"I believe that we already can provide more efficient coverage for many of the people now served by FHA," said James Miller, chairman of Commonwealth Mortgage Assurance Co., a Philadelphiabased private mortgage insurer.
But some housing lobbyists are hoping to head off big changes.
In a Dec. 13 letter to the White House chief of staff, Leon Pannetta, the MBA, the National Association of Realtors, and the National Association of Home Builders wrote: "We are very concerned that restricting FHA to pool insurance of mortgages guaranteed by Fannie Mae, Freddie Mac, and other securitizers will limit the homeownership opportunities of the very groups that the FHA has traditionally served -- minority Americans, low- and moderate-income families, and those living in economically depressed areas of central cities."
