CHICAGO - Critics and supporters of the Federal Housing Administration's mortgage insurance program appear to agree that the program is badly in need of repairs.

At a meeting last Thursday of the Housing Roundtable, a housing industry leadership group, experts gathered to discuss the state of the agency's program and what the future holds for it.

Some of the experts argued that the FHA should be privatized, or even eliminated altogether.

Drastic Remedies

"The FHA has outlived its usefulness and should be put under private ownership," said Prof Edwin Mills, director of the Center for Real Estate Research at the University of Chicago.

"I don't buy the notion that homeownership is the American dream," he added.

Many in the industry are concerned that the venerable home loan insurance program is badly adrift.

Lenders' claims against the FHA equaled 11% of its portfolio in 1991.

Critics blame rising limits on the size of loans insured, as well as extremely low down payment requirements.

Critics have also accused the FHA of favoring middle-income suburbanites.

American Dream

But defenders said the FHA's service to poor and moderate-income homebuyers should be preserved, because it helps give substance to the dream of homeownership for all.

"I don't believe privatization is the answer," said Richard F. Malloy, executive vice president for Norwest Mortgage Inc., Des Moines.

"The reality is that our culture has been built on the dream that homeownership is achievable," he said.

"We need some way to avoid cutting off the lower economic rungs from this ladder," Mr. Malloy said.

In an interview after the meeting, Weston Edwards, chairman of the roundtable, spoke even more forcefully.

Issue Seen as Crucial

The importance of homeownership is "a biblical thing," he said.

"There is true strength that comes to the fabric of our society from homeownership."

But even such strong advocates of the social value of homeownership agreed that the FHA program needs major restructuring.

"We should not continue tinkering," Mr. Malloy said. Critics should come up with some fresh ideas, he said.

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