An industry group urged Congress Thursday to increase the amount of FHA-insured adjustable-rate loans that may be issued annually.

Donald Martin, president of the National Association of Home Builders, told House Banking's housing subcommittee that current limits on the loans prevent many low- and moderate-income borrowers from obtaining mortgages.

The home builders group "wholeheartedly supports an increase in the number of adjustable-rate mortgages FHA can insure," Mr. Martin said.

The provision is included in a broad bill sponsored by the subcommittee chairman, Rep. Rick Lazio, R-N.Y., that would affect federal housing programs

Under current law the number of FHA adjustable loans may not exceed 30% of the total number of FHA mortgages issued in the previous year. Because of the limit, the number of adjustable FHA mortgages is capped at 237,107 for fiscal year 1998.

The legislation would raise the cap to 40% of the previous year's total loans, a level that would have allowed another 79,036 adjustable mortgages this year.

But Mr. Martin urged lawmakers to go further. "If Congress believes a cap is needed, 50% would better serve the thousands of prospective purchasers who rely on FHA-insured adjustable-rate mortgages to qualify for a home purchase," he said.

The cap forced the Department of Housing and Urban Development to stop insuring adjustable-rate loans on April 30. No new adjustable FHA loans may be issued until Oct. 1, when the government's next fiscal year begins.

Rep. Lazio's legislation would also make permanent the government's reverse mortgage program, which lets senior citizens receive payments based on the equity in their homes. "This bill would preserve and protect opportunities for senior citizens to remain in their own homes, near their families and friends," Rep. Lazio said.

The FHA-insured loans do not have to be repaid until the house is sold or the homeowner dies. The provision, endorsed by the American Association of Retired Persons, would give HUD authority to restrict lenders from charging "excessive" fees for reverse mortgages. Under the program, which began in 1987, about 45,000 FHA-insured reverse mortgages have been closed. The program expires in 2000.

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