In the debate on the Federal Housing Administration's role in encouraging homeownership, three issues are paramount: Who needs help buying a house? How should the federal government's assistance be structured? And what effect does this have on taxpayers?

If expanding homeownership is a national goal, then we should direct the government's limited resources toward the segment of the market that needs help the most: lower-income first-time homebuyers. While nearly 90% of U.S. households that earn more than $50,000 a year own homes, less than half making under $20,000 own homes.

The notion that an income-targeted FHA program would require additional government subsidy or a higher premium is unfounded. Lower-income borrowers buying low-price houses do not have higher default rates on low-down- payment loans than higher-income borrowers buying high-price houses.

In fact, the opposite is true. Of the 5.1 million loans with 5% or larger down payments that the private sector insured from 1981 to 1991, loans of $200,000 or more were nearly three times more likely to go into foreclosure than loans of $50,000 to $74,000.

A targeted FHA program can fulfill a worthwhile public policy goal - increasing homeownership among those who face the greatest difficulty buying a house - without taxpayers providing unnecessary government subsidies to upper-income homebuyers.

A recent opinion piece in this newspaper alleged mortgage insurance industry leaders believe that if FHA provides anything less than 100% insurance on loans, up to 300,000 people a year would be unable to buy homes. This is not the case. Not only is attributing the statement to our industry inaccurate, the statement itself has no basis in fact.

What is true is that 100% government insurance coverage provides a disincentive and, in some case, does a disservice to parties involved in a loan transaction.

Unfortunately, full government insurance undermines the incentive to underwrite loans carefully and follow up quickly if payments are missed. It can result in families buying houses they can't afford to keep.

Foreclosures devastate homeowners and their families, who lose their place to live as well as their major financial asset. Large numbers and ineffective disposition of foreclosed properties result in abandoned, boarded-up houses that diminish neighborhood property values.

With true risk-sharing, each party - borrower, lender, insurer, and investor - has a stake in the loan transaction. Each stands to lose if the loan goes into default. This assures all parties will work together to make certain that borrowers buy homes they can truly afford.

Further, the FHA's obligations should no longer be backed by the full faith and credit of the U.S. government, which puts taxpayers at risk for a future bailout.

The most recent Price Waterhouse actuarial study of the FHA offers a mixed prognosis of the agency's financial state. In addition, recent reports by the Department of Housing and Urban Development's inspector general document managerial problems that have plagued the FHA for years.

It has been suggested that FHA be turned into a government- owned corporation, free from day-to-day government control but with its full- faith-and-credit guarantee behind loan obligations. This would be the worst of all possible worlds.

In this new political environment, we have an opportunity to restructure FHA so it can serve those who truly need help buying a home without putting taxpayers at undue risk. If a new FHA is properly structured - with targeting, risk sharing, and elimination of the full-faith-and-credit guarantee - we can begin to solve the problems the program faces. These are the issues we should focus on as the debate continues in the coming months.

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