WASHINGTON - Housing industry officials urged Congress yesterday to find ways to increase the amount of federal insurance provided for multifamily housing, a move that would boost low-income rental housing production and in turn lift issuance of tax-exempt bonds.

"The need for credit enhancement for financing affordable multifamily housing is overwhelming," James L. Logue 3rd, executive director of the Michigan State Housing Development Authority, told the House Banking Committee's subcommittee on housing and community development.

"The perception of risk by providers of capital is still a problem for providers of multifamily housing," said William C. Perkins, a member of the board of directors of the Federal Housing Finance Board. "We all recognize credit enhancement needs to be a part of the solutions."

Since 1985, production of low-income rental housing units has dropped drastically, with the country's rental housing stock suffering a net loss of 197,000 units a year between 1985 and 1989, Mr. Logue said. The dropoff was caused in large part by the Tax Reform Act of 1986, which did away tax deductions investors took for losses from real estate projects.

Issuance of tax-exempt multifamily housing bonds suffered a similar decline during the same period. In 1985, $21.8 billion was issued, but since then the annual figure has hovered near the $3 billion mark, according to statistics compiled by The Bond Buyer. Most of each year's total goes toward refundings, leaving a scant amount for new constructions, lobbyists have said.

With multifamily financing hard to come by, FHA insurance is needed now more than ever, the officials told the subcommittee. A key benefit of federal insurance is its allows state and local housing agencies to "receive a higher rating on their bonds, thus lowering the cost of the bonds," Mr. Logue said. Those savings are passed through to the projects, increasing the amount of units than can be financed, he said.

But the FHA, an agency within the Department of Housing and Urban Development, has actually been decreasing its role in providing insurance, the housing officials said.

"FHA has almost shut down its multifamily capacity," Mr. Logue said. The amount of loans insured fell from $5.6 billion in 1987 to $630 million in 1989 and $1.8 billion in 1990.

They said part of the problem is the agency's aversion to taking risks, which developed during the 1980s when of scandals involving HUD insurance programs were uncovered. Another major impediment to insuring loans is inadequate staffing in HUD field offices where loan applications are processed, they said.

Mr. Logue said one solution would be for Congress to approve a provision included in the Senate Banking Committee's omnibus housing bill. That proposal would set up a pilot program under which the FHA would enter into so-called risk-sharing agreements with state and local housing finance authorities. FHA would provide the insurance, but any losses on defaulted loans would be absorbed by both the federal agency and the state and local authorities.

Leo Zickler, a board member of the National Multi Housing Council, said his group endorsed a proposal by Rep. Barney Frank, D-Mass., to set up a pilot program under which multifamily loans would be originated by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., and possibly state housing agencies. The FHA would provide some credit enhancement, but the agencies would also insure some of the loans.

Another way to increase the amount of insurance provided by the FHA simply for Congress to "instruct HUD to redirect its priorities towards encouraging the origination and refinancing of multifamily housing properties," said Robert W. Fidler, senior vice president of the Fleet Real Estate Funding Corp. He represented the Mortgage Bankers Association of America.

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