The refinancing boom has had many profitable takers since interest rates began their downward spiral last year, but the next potential participant is far bigger than any of the usual 800-pound mortgage industry gorillas--it's the federal government.

When the Clinton administration unveiled its plan to reinvent government Sept. 7, it jumped right into the refi craze by suggesting lower, government -costly HUD homeowner subsidies. This could be accomplished, the administration said, by offering incentives to persuade homeowners to refinance at today's lower rates.

"The program does not take advantage of lower interest rates because the assisted owners do not have enough incentive to go through the work or bother of refinancing," said Gore's National Performance Review report. "We recommend that HUD offer incentive contracts to private companies to let them share a percentage of the savings to the government of refinancing the mortgages. They could work with the homeowners to arrange refinancing, doing the necessary leg work and make cost-effective payments to homeowners to induce them to refinance."

The report added that if homeowners refinance, the benefits would remain unchanged and the government could save more than $2 1 0 million over five years.

There's no argument from mortgage bankers, who believe that estimate is probably within reach. But what they're eyeing even more closely are the questioned section 235 mortgages--those specialized single-family loans with government-subsidized interested payments--that are such a hassle to service.

"HUD was paying an 8% subsidy on loans in 1980," said Brian Chappelle, staffvice president for the Mortgage Bankers Association of America. "And the borrower was paying 8%. If HUD can refinance those loans at today's 6% [actually 6.93%]. the borrower gets a lower rate than they originally had, and HUD doesn't have any costs. It's a win-win situation."

But while the idea has benefits for both the consumer and HUD, Chappelle said the lender would also reap a reward. It's going to allow lenders to clear out all of those old 235 loans, nearly 30,000 of them. And lenders would like it because it's a pain in the neck to service those loans--these 235 products almost always have to be serviced by hand."

The incentive to the customer-suggested by Gore probably wouldn't be that dramatic for the lenders either, according to Chappelle, who said that the incentive might just be the cost of the refinancing, probably $1,000 a loan or so."

The Gore suggestions for reinventing HUD were derived from suggestions originated by the department. If the plan is implemented, government savings are projected to be $602 million over five years. However, refinancing special loans represents just a small portion of the plan. Mortgage bankers will also closely watch other suggestions, including: * improving multifamily asset management and disposition by using public-private partnerships to manage and sell HUD-held loans and real estate for nonsubsidized housing projects;

* improving single-family asset management and disposition by using a combination of early assistance to borrowers having financial difficulties, contract loan servicing, contract mortgage assistance programs and public private partnerships to streamline and improve management of HUD-assigned single family mortgages;

* establish a new housing production program through FHA risk-sharing arrangements with housing finance agencies, stimulate a secondary market for multifamily properties, improve access to FHA insurance for first-time home buyers, provide special FHA programs to revitalize neighborhoods and improve FHA management.

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